C. require the recording of a deferred tax liability
Which of the following statements related to a deferred tax liability is incorrect?
A. it is a future obligation
Future deductible amounts will cause
D. the recording of a deferred tax asset
a deferred tax valuation allowance account is used to recognize a reduction in
B. a deferred tax asset only
Income tax expense is computed as income tax payable
C. plus or minus the change in deferred income taxes
All of the following are examples of temporary differences that result in taxable amounts in future years except
D. subscriptions received in advance
Which of the following is not a permanent difference?
D. litigation accruals
Deferred income taxes are based on the
C. future tax rates if they have been enacted into law
A net operating loss
C. may be carried back 2 years or carried forward up to 20 years
Which of the following statements related to loss carrybacks and carryforwards is correct?
B. the benefit due to a loss caryfoward can be reported in both the loss
year and future years
Deferred income taxes are usually classified as
A. current or noncurrent based on the classification of the related
asset (liability) for financial reporting purposes
Income tax expense should be accepted to all of the following except
B. unusual or infrequent items
All of the following are possible sources of taxable income available to realize a tax benefit for deductible temporary differences except
D. future reversals of existing deductible temporary differences
The last procedure (step) in the computation of deferred income taxes is to
A. reduce deferred tax assets by a valuation allowance if necessary
Pretax financial income is determined according to the Internal Revenue Code.
A deferred tax liability represents the increase in taxes payable in future years as a result of a taxable temporary differences
Permant diferrences reslt in deferred tax consequences
A loss carryback may be foregone and used as a loss carryforward for up to 20 years.
The valuation allowance account shoud be evaluated at the end of each accounting period
Proceeds from life insurance carried by the company on key officers or employees is an example of a temporary difference.
A deferred tax asset is the deferred tax consequence attributable to deductible temporary differences
A deferred tax liability is the deferred tax consequence attributable to taxable temporary differences
Taxable temporary differences give rise to recording deferred tax assets
Subscriptions received in advance will result in taxable amounts in the future years.
false - results in tax deductible amount or tax asset to be added to pretax financial income in future years
Income tax expense is based on
A. pretax income
Deferred tax expense is the
A. increase in a deferred tax liability
A deferred tax liability represents the:
C. increase in taxes payable in future years as a result of taxable tempory differences
A deferred tax asset represents the:
D. increase in taxes saved in future years as a result of deductible temporary differences
A valuation account is used to:
D. reduce a deferred tax asset
All of the following are examples of temporary differences that result in tax deductions in future years except:
D. depreciable property
Which of the following is not an example of a temporary difference that will result in a deductible amount in future years?
B. installment sales
Which of the following is a permanent difference?
D. interest received on state and municipal obligations
In computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the:
A. average rates
The FASB believes that the most consistant method for accounting for income taxes in the:
B. asset liability method
Taxable income of a corporations
C. differs from accounting income due to differences in intraperiod
allocaction and permanent differences between the 2 mthods of income
Taxable income of a corporation differs from pretax financial income because of
Permanent differences/temporary differences
Interperiod income tax allocation causes
B. tax expense shown on the income statement to equal the amount of
income taxes payable for the current year plus or minus the change in
the diferred tax asset or liability balances for the year
The deferred tax expense is the
D. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset
The rationale for interperiod income tax allocation is to
A. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date
Interperiod tax allocation results in a deferred tax liability from
A. an income item fully recognized for tax and financial purposes in any one year
Interperiod tax allocation results in a deferred tax liability from
B. an income item fully recognized for tax and financial purposes in any one year
Interperiod income tax allocation procedures are appropriate when
D. differences between net income for tax purposes and financial
reporting occur because even though financial accounting principles and
tax laws concur on the item to be recognized as revenues and expenses,
they don't concur on the timing of the recognition
A temporary difference arises when a revenue item is reported for tax purposes in a period
after reported in financial/before reported in finacial
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?
I. A revenue is deferred for financial reporting purposes but not for tax purposes
II A revenue is deferred for tax purposes but not for financial reporting purposes
III. An expense is deferred for financial reporting purposes but not for tax purposes
IV. An expense is deferred for tax purposes but not for financial reporting purposes
B. items II and III only
A major distincition between temporary and permanent differences is
B. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse
Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?
D. an installment sale accounted for on the accural basis for financial
reporting purposes and on the installment (cash) basis for tax purposes
a & b are taxable before recognizned as financial income and d is a permanent difference
Renner 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 income for Renner would be
D. a find resulting from violations of OSHA regulations
An example of a permant difference is
A. all of these
Which of the following will not result in a temporary difference?
D. all of these will result in a temporary difference
When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be
B. reported as an adjustment to tax expense in the period of change
Recognition of tax benefits in the loss year due to a loss carry forward requires
B. the establishment of a deferred tax asset
Deferred taxes should be presented on the balance sheet
D. in 2 amounts: one for the net current amount and one for the net noncurrent amount
Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on
A. the classification of the related asset or liability
Tanner, Inc, incurred a financial and taxable loss for 2007.; Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2007 financial statements?
C. the refund claimed should be shown as a reduction of the loss in 2007.