Question 1

Distinguish between an originating temporary difference and a reversing temporary difference.

Accepted Answer

An originating temporary difference is t...

Question 2

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible for income tax purposes after they are recognized for financial accounting income?

Accepted Answer

A)   Product warranty liabilities
B)   Advance rental receipts
C)   Depreciable property
D)   Fines and expenses resulting from a violation of lawE) B) and C)
F) None of the above

Question 3

Discuss how SFAS No. 109, now FASB ASC 740, changed the accounting for deferred tax assets.

Accepted Answer

The FASB was convinced by the critics of...

Question 4

Smith Corporation owns only 25 percent of the voting stock of Jones Corporation, but exercises significant influence over its operating and financial policies. The tax effect of differences between taxable income and pretax accounting income attributable to undistributed earnings of Jones Corporation should be

Accepted Answer

A)   Accounted for as a timing difference
B)   Accounted for as a permanent difference
C)   Ignored because it must be based on estimates and assumptions
D)   Ignored because Smith holds less than 51 percent of the voting stock of JonesE) A) and D)
F) None of the above

Question 5

Describe the three types of permanent differences. `

Accepted Answer

There are three types of permanent diffe...

Question 6

A company has four "deferred income tax" accounts arising from timing differences involving (1)  current assets, (2)  noncurrent assets, (3)  current liabilities, and (4)  noncurrent liabilities. The presentation of these four "deferred income tax" accounts in the statement of financial position should be shown as

Accepted Answer

A)   A single net non-current amount
B)   A net current and a net noncurrent amount
C)   Four accounts with no netting permitted
D)   Valuation adjustments of the related assets and liabilities that gave rise to the deferred taxE) All of the above
F) A) and C)

Question 7

A machine with a 10-year useful life is being depreciated on a straight-line basis for financial statement purposes, and over 5 years for income tax purposes under the accelerated recovery cost system. Assuming that the company is profitable and that there are and have been no other timing differences, the related deferred income taxes would be reported in the balance sheet at the end of the first year of the estimated useful life as a

Accepted Answer

A)   Current liability
B)   Current asset
C)   Noncurrent liability
D)   Noncurrent assetE) None of the above
F) B) and D)

Question 8

Discuss the arguments for comprehensive vs. partial allocation of interperiod taxes.

Accepted Answer

Under comprehensive allocation, the inco...

Question 9

With respect to the difference between taxable income and pretax accounting income, the tax effect of the undistributed earnings of a subsidiary included in consolidated income should normally be

Accepted Answer

A)   Accounted for as a timing difference
B)   Accounted for as a permanent difference
C)   Ignored because it must be based on estimates and assumptions
D)   Ignored because it cannot be presumed that all undistributed earnings of a subsidiary will be transferred to the parent companyE) B) and C)
F) C) and D)

Question 10

A major distinction between temporary and permanent differences is

Accepted Answer

A)   Permanent differences are not representative of acceptable accounting practice
B)   Temporary differences occur frequently, whereas permanent differences occur only once
C)   Once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time.
D)   Temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverseE) All of the above
F) A) and B)

Question 11

Under the asset-liability method, deferred taxes should be presented on the balance sheet

Accepted Answer

A)   As one net non-current amount
B)   In two amounts: one for the net current amount and one for the net non-current amount
C)   In two amounts: one for the net debit amount and one for the net credit amount
D)   As reductions of the related asset or liability accountsE) C) and D)
F) A) and D)

Question 12

When is it appropriate to record a valuation account for a deferred tax asset?

Accepted Answer

A deferred tax asset is recognized for a...

Question 13

Describe the accounting treatment for net operating losses.

Accepted Answer

A net operating loss (NOL) occurs when t...

Question 14

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

Accepted Answer

A)   It is probable and can be reasonably estimated
B)   There is at least a 51% probability that the uncertain tax position will be approved by the taxing authorities
C)   It is more likely than not that the tax position will be sustained upon audit
D)   All of the aboveE) B) and D)
F) None of the above

Question 15

Define the following:
a. Deferred method of income tax allocation
b. Asset-liability method of income tax allocation
c. Net-of-tax method

Accepted Answer

a. Deferred method of income tax allocat...

Question 16

What is the difference between a future taxable amount and a future deductible amount?

Accepted Answer

A future taxable amount will increase ta...

Question 17

Which of the following would cause a deferred tax expense?

Accepted Answer

A)   Write-down of goodwill due to impairment
B)   Use of equity method where undistributed earnings of a 30 percent owned investee are related to probable future dividends
C)   Premiums paid on insurance carried by company (beneficiary)  on its officers or employees
D)   Income is taxed at capital gains ratesE) C) and D)
F) B) and C)

Question 18

A company that has both short-term deferred tax assets of $22,000, long-term deferred tax liabilities of $36,000, short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

Accepted Answer

A)   A current asset for $22,000, a current liability for $36,000, a long-term asset for $60,000, and a long-term liability for $51,000.
B)   A current liability for $14,000 and a long-term asset for $9,000.
C)   A non-current liability for $5,000.
D)   A current liability for $14,000, a long-term asset for $60,000, and a long-term liability for $51,000.E) None of the above
F) C) and D)

Question 19

Discuss the arguments for and against discounting deferred taxes.

Accepted Answer

Proponents of reporting deferred taxes a...

Question 20

A deferred tax liability represents the:

Accepted Answer

A)   Increase in taxes payable in future years as a result of taxable temporary differences
B)   Increase in taxes saved in future years as a result of deductible temporary differences
C)   Decrease in taxes saved in future years as a result of deductible temporary differences
D)   Decrease in taxes payable in future years as a result of taxable temporary differencesE) B) and D)
F) A) and B)

Exam 12: Accounting for Income Taxes

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

Correct Answer
verified

Correct Answer
verified

Discuss how SFAS No. 109, now FASB ASC 740, changed the accounting for deferred tax assets.

Correct Answer
verified
The FASB was convinced by the critics of...
View Answer

A major distinction between temporary and permanent differences is

Correct Answer
verified

Correct Answer
verified

What is the difference between a future taxable amount and a future deductible amount?

Correct Answer
verified
A future taxable amount will increase ta...
View Answer

Distinguish between an originating temporary difference and a reversing temporary difference.

Correct Answer
verified
An originating temporary difference is t...
View Answer

A deferred tax liability represents the:

Correct Answer
verified

Describe the three types of permanent differences. `

Correct Answer
verified
There are three types of permanent diffe...
View Answer

Discuss the arguments for comprehensive vs. partial allocation of interperiod taxes.

Correct Answer
verified
Under comprehensive allocation, the inco...
View Answer

Which of the following would cause a deferred tax expense?

Correct Answer
verified

Describe the accounting treatment for net operating losses.

Correct Answer
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A net operating loss (NOL) occurs when t...
View Answer

Define the following: a. Deferred method of income tax allocation b. Asset-liability method of income tax allocation c. Net-of-tax method

Correct Answer
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a. Deferred method of income tax allocat...
View Answer

A company that has both short-term deferred tax assets of $22,000, long-term deferred tax liabilities of $36,000, short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

Correct Answer
verified

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible for income tax purposes after they are recognized for financial accounting income?

Correct Answer
verified

Correct Answer
verified

Discuss the arguments for and against discounting deferred taxes.

Correct Answer
verified
Proponents of reporting deferred taxes a...
View Answer

When is it appropriate to record a valuation account for a deferred tax asset?

Correct Answer
verified
A deferred tax asset is recognized for a...
View Answer

With respect to the difference between taxable income and pretax accounting income, the tax effect of the undistributed earnings of a subsidiary included in consolidated income should normally be

Correct Answer
verified

Under the asset-liability method, deferred taxes should be presented on the balance sheet

Correct Answer
verified

Exam 12: Accounting for Income Taxes

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Discuss how SFAS No. 109, now FASB ASC 740, changed the accounting for deferred tax assets.

Correct AnswerverifiedThe FASB was convinced by the critics of...View AnswerShow Answer

A major distinction between temporary and permanent differences is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the difference between a future taxable amount and a future deductible amount?

Correct AnswerverifiedA future taxable amount will increase ta...View AnswerShow Answer

Distinguish between an originating temporary difference and a reversing temporary difference.

Correct AnswerverifiedAn originating temporary difference is t...View AnswerShow Answer

A deferred tax liability represents the:

Correct AnswerverifiedShow Answer

Describe the three types of permanent differences. `

Correct AnswerverifiedThere are three types of permanent diffe...View AnswerShow Answer

Discuss the arguments for comprehensive vs. partial allocation of interperiod taxes.

Correct AnswerverifiedUnder comprehensive allocation, the inco...View AnswerShow Answer

Which of the following would cause a deferred tax expense?

Correct AnswerverifiedShow Answer

Describe the accounting treatment for net operating losses.

Correct AnswerverifiedA net operating loss (NOL) occurs when t...View AnswerShow Answer

Define the following: a. Deferred method of income tax allocation b. Asset-liability method of income tax allocation c. Net-of-tax method

Correct Answerverifieda. Deferred method of income tax allocat...View AnswerShow Answer

A company that has both short-term deferred tax assets of $22,000, long-term deferred tax liabilities of $36,000, short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

Correct AnswerverifiedShow Answer

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible for income tax purposes after they are recognized for financial accounting income?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Discuss the arguments for and against discounting deferred taxes.

Correct AnswerverifiedProponents of reporting deferred taxes a...View AnswerShow Answer

When is it appropriate to record a valuation account for a deferred tax asset?

Correct AnswerverifiedA deferred tax asset is recognized for a...View AnswerShow Answer

With respect to the difference between taxable income and pretax accounting income, the tax effect of the undistributed earnings of a subsidiary included in consolidated income should normally be

Correct AnswerverifiedShow Answer

Under the asset-liability method, deferred taxes should be presented on the balance sheet

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The FASB was convinced by the critics of...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A future taxable amount will increase ta...
View Answer

Correct Answer
verified
An originating temporary difference is t...
View Answer

Correct Answer
verified

Correct Answer
verified
There are three types of permanent diffe...
View Answer

Correct Answer
verified
Under comprehensive allocation, the inco...
View Answer

Correct Answer
verified

Correct Answer
verified
A net operating loss (NOL) occurs when t...
View Answer

Correct Answer
verified
a. Deferred method of income tax allocat...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Proponents of reporting deferred taxes a...
View Answer

Correct Answer
verified
A deferred tax asset is recognized for a...
View Answer

Correct Answer
verified

Correct Answer
verified