Corp II Exam 3 Multiple Choice

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet?

A revenue is deferred for tax purposes but not for financial reporting purposes An expense is deferred for financial reporting purposes but not for tax purposes.

A temporary difference arises when a revenue item is reported for tax purposes in a period

After it is reported in financial income: Yes Before it is reported in financial income: Yes

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.

Which of the following differences would result in future taxable amounts?

Expenses or losses that are tax deductible before they are recognized in financial income

Which of the following will not result in a temporary difference?

Interest received on municipal obligations

Taxable income of a corporation differs from pretax financial income because of?

Permanent Difference: Yes Temporary Differences: Yes

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Product warranty liabilities

Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation?

Projected benefit obligation

Which of the following is not a characteristic of a defined-contribution pension plan?

The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan

Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Stuart would be

a fine resulting from violations of OSHA regulations

An example of a permanent difference is

all of these answers are correct as they are all examples of permanent differences. :proceeds from life insurance on officers. :interest expense on money borrowed to invest in municipal bonds. :insurance expense for a life insurance policy on officers.

In accounting for a defined-benefit pension plan

an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised.

One component of pension expense is actual return on plan assets. Plan assets include

assets that a company holds to earn a reasonable return, generally at minimum risk

In a defined-benefit plan, a formula is used that

defines the benefits that the employee will receive at the time of retirement

In all pension plans, the accounting problems include all the following except

determining the level of individual premiums

The actual return on plan assets

includes interest, dividends, and changes in the fair value of the fund assets

The deferred tax expense is the

increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

In a defined-benefit plan, the process of funding refers to

making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims.

In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as

pension asset/liability.

The relationship between the amount funded and the amount reported for pension expense is as follows:

pension expense may be greater than, equal to, or less than the amount funded

In a defined-contribution plan, a formula is used that

requires an employer to contribute a certain sum each period based on the formula

A major distinction between temporary and permanent differences is

temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.