The real final exam of accounting for mutlpkle choices

A single lease expense is recognized on the income statement for

an operating lease.

Which of the following is accounted for as a change in accounting principle?

A change in inventory valuation from average cost to FIFO

Which of the following is false regarding accounting for deferred taxes under IFRS?

A deferred tax liability is classified as current or noncurrent based on the classification of the asset or liability to which it relates.

An example of a permanent difference is

All of these answers are correct as they are all examples of permanent differences.

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

Deductible amounts cause taxable income to be greater than pretax financial income in the future as a result of existing temporary differences.

False

Under GAAP, the rate used to compute deferred taxes is either the enacted tax rate, or a substantially enacted tax rate (virtually certain).

False

Under an operating lease, the lessor records each rental receipt as part interest revenue and part rental revenue.

False

Under the loss carryback approach, companies must apply a current year loss to the most recent year first and then to an earlier year.

False

When changing from the equity method to the fair value method, a company must eliminate the balance in Unrealized Holding Gain or Loss.

False

Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does nottransfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?

Finance leaseFinance lease

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? I.Accrual for product warranty liability II.Subscriptions received in advance III.Prepaid insurance expense

I and II only.

When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?

Increase Decrease

An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

deduction from net income in arriving at net cash flow from operating activities.

Ohlman, Inc. maintains a defined-benefit pension plan for its employees. As of December 31, 2021, the market value of the plan assets is less than the accumulated benefit obligation. The projected benefit obligation exceeds the accumulated benefit obligation. In its balance sheet as of December 31, 2021, Ohlman should report a liability in the amount of the

excess of the projected benefit obligation over the fair value of the plan assets.

An example of a correction of an error in previously issued financial statements is a change

from the cash basis of accounting to the accrual basis of accounting.

All of the following are procedures for the computation of deferred income taxes except to

measure the total deferred tax liability for deductible temporary differences.

In computing amortization of a leased asset where there is no bargain purchase option, the lessee should subtract

no residual value and depreciate over the term of the lease.

Hager Company sold some of its plant assets during 2021. The original cost of the plant assets was $900,000 and the accumulated depreciation at date of sale was $840,000. The proceeds from the sale of the plant assets were $90,000. The information concerning the sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) for the year ended December 31, 2021, as a(n)

subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities.

A major distinction between temporary and permanent differences is

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

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in

Yes Yes

Taxable income of a corporation differs from pretax financial income because of PermanentTemporary DifferencesDifferences

Yes Yes

Accounting for income taxes can result in the reporting of deferred taxes as

a non current liability.

Hayes Construction Corporation contracted to construct a building for $7,500,000. Construction began in 2021 and was completed in 2022. Data relating to the contract are summarized below: Year ended ​​December 31, 20212022 Costs incurred$3,000,000$2,250,000 Estimated costs to complete2,000,000— Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2021, and 2022, respectively, Hayes should report gross profit of

$1,500,000 and $750,000

Bruner Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2021, Bruner started work on a $49,000,000 construction contract that was completed in 2022. The following information was taken from Bruner's 2021 accounting records: Progress billings$15,400,000 Costs incurred14,700,000 Collections9,600,000 Estimated costs to complete29,400,000 What amount of gross profit should Bruner have recognized in 2021 on this contract?

$1,633,333

Hopkins Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income$ 3,000,000 Estimated litigation expense4,000,000 Extra depreciation for taxes(6,000,000) Taxable income$ 1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2,000,000 in each of the next three years. The income tax rate is 20% for all years.Income taxes payable is

$200,000

The net cash provided by operating activities in Sosa Company's statement of cash flows for 2021 was $310,000. For 2021, depreciation on plant assets was $90,000, amortization of patent was $16,000, and cash dividends paid on common stock was $108,000. Based only on the information given above, Sosa's net income for 2021 was

$204,000

Lyons Company deducts insurance expense of $210,000 for tax purposes in 2021, but the expense is not yet recognized for accounting purposes. In 2022, 2023, and 2024, no insurance expense will be deducted for tax purposes, but $70,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 20% and income taxes payable of $180,000 at the end of 2021. There were no deferred taxes at the beginning of 2021.What is the amount of income tax expense for 2021?

$222,000

Lyons Company deducts insurance expense of $210,000 for tax purposes in 2021, but the expense is not yet recognized for accounting purposes. In 2022, 2023, and 2024, no insurance expense will be deducted for tax purposes, but $70,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 20% and income taxes payable of $180,000 at the end of 2021. There were no deferred taxes at the beginning of 2021.Assuming that income taxes payable for 2022 is $240,000, the income tax expense for 2022 would be what amount?

$282,000

In its 2021 income statement, Cohen Corp. reported depreciation of $3,700,000 and interest revenue on municipal obligations of $700,000. Cohen reported depreciation of $5,500,000 on its 2021 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 25% for 2021, 20% for 2022, and 15% for 2023 and 2024. What amount should be included in the deferred income tax liability in Hertz's December 31, 2021 balance sheet?

$300,000

Mathis Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:Pretax financial income$ 1,200,000Estimated litigation expense3,000,000Installment sales(2,400,000)Taxable income$ 1,800,000The estimated litigation expense of $3,000,000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1,200,000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1,200,000 current and $1,200,000 noncurrent. The income tax rate is 20% for all years.The deferred tax liability to be recognized is Correct Answer

$480,000

On January 1, 2019, Neal Corporation acquired equipment at a cost of $840,000. Neal adopted the sum-of-the-years'-digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value. At the beginning of 2022, a decision was made to change to the straight-line method of depreciation for this equipment. The depreciation expense for 2022 would be

$70,000.

The Pension Asset / Liability account balance equals the difference between the projected benefit obligation and the fair value of pension plan assets.

True

The indirect method adjusts net income for items that affected reported net income but did not affect cash.

True

The net increase (decrease) in cash reported on the statement of cash flows should reconcile the beginning and ending cash balances reported in the comparative balance sheets.

True

Which type of accounting change should always be accounted for in current and future periods?

Change in accounting estimate

The tax effect of a loss carryforward represents future tax savings and results in the recognition of a deferred tax asset.

True

When it is impossible to determine whether a change in principle or change in estimate has occurred, the change is considered a change in estimate.

True

A deferred tax liability represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year.

True

Companies classify some cash flows relating to investing or financing activities as operating activities.

True

Taxable temporary differences will result in taxable amounts in future years when the related assets are recovered.

True