Question 1

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

Accepted Answer

A)  The deferred method of interperiod income tax allocation
B)  Discounting deferred income taxes
C)  Nonallocation of income taxes
D)  The asset/liability method of income tax allocation.E) A) and D)
F) A) and C)

Question 2

Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position?

Accepted Answer

A)  Income taxes result only from taxable income.
B)  Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting.
C)  Income taxes are not levied on individual items of income or expense.
D)  The current provision for income taxes is a better predictor of future cash flows than is income tax expense that includes deferred taxes.E) B) and D)
F) A) and C) B

Question 3

Which of the following causes a permanent difference between taxable income and financial accounting income?

Accepted Answer

A)  The useful life of an asset is 10 years.The asset is depreciated over 7 years for tax purposes.
B)  Rent received in advance is taxable upon receipt.
C)  A life insurance premium paid by the corporation on a policy that names the corporation as the beneficiary.
D)  A penalty paid to a bank when a CD is cashed before its maturity date.E) A) and B)
F) B) and C)

Question 4

The accounting recognition of the benefit from a tax loss carryforward in most situations should be reported as

Accepted Answer

A)  A reduction of the loss in the year of the loss with an appropriate valuation allowance
B)  A prior period adjustment in whichever year the benefit is realized
C)  An extraordinary item in the year in which the benefit is realized
D)  An item on the retained earnings statement,not the income statementE) B) and C)
F) A) and D)

Question 5

Describe the use of the valuation allowance for deferred tax assets.

Accepted Answer

The deferred tax asset measures potentia...

Question 6

A company's only temporary difference results from using double declining balance depreciation for tax purposes and straight-line depreciation for financial reporting.The company purchases new plant assets each year.If currently enacted tax law will result in a higher tax rate for all future tax years,which accounting approach for deferred taxes will result in the lowest net income for this current year?

Accepted Answer

A)  Nonallocation of deferred taxes.
B)  Partial allocation of deferred taxes under the asset/liability method.
C)  Comprehensive allocation of deferred taxes under the asset/liability method.
D)  Comprehensive allocation of deferred taxes under the deferred method.E) A) and B)
F) A) and D)

Question 7

Which of the following is not affected by tax allocation within a period?

Accepted Answer

A)  Income before extraordinary items
B)  Extraordinary events
C)  Adjustments of prior periods
D)  Operating revenuesE) A) and B)
F) C) and D)

Question 8

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 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 B)

Question 9

The tax effect of a difference between taxable income and pretax accounting income attributable to losses of a subsidiary is normally recognized for

Accepted Answer

A)  Neither carrybacks nor carryforwards
B)  Both carrybacks and carryforwards
C)  Carrybacks but not carryforwards
D)  Carryforwards but not carrybacksE) A) and B)
F) A) and D)

Question 10

Which of the following will result in a deferred tax liability?

Accepted Answer

A)  A net operating loss carryover.
B)  Reporting an unrealized gain for a trading security.
C)  Reporting an unrealized gain for an available-for-sale security.
D)  Reporting an expected loss on from a lawsuit in the income statement,when it cannot be reported on the tax return until it is actually incurred.E) All of the above
F) B) and D)

Question 11

Discuss the rationale behind the calculation of a company's earnings conservatism ratio.

Accepted Answer

The rationale for the earnings conservat...

Question 12

Describe the accounting treatment for net operating losses.

Accepted Answer

A net operating loss NOL)occurs when the amount of total tax deductions and tax-deductible losses is greater than the amount of total taxable revenues and gains during an accounting period.The IRC allows corporations reporting NOLs to carry these losses back and forward to offset other reported taxable income currently back two years and forward twenty years).A NOL carryback is applied to the taxable income of the two preceding years in the order in which they occurred,beginning with the older year first.If unused NOLs are still available,they are carried forward for up to twenty years to offset future taxable income.NOL carrybacks result in the refund of prior taxes paid.Thus,the tax benefits of NOL carrybacks are currently realizable and for financial accounting purposes are reported as reductions in the current period loss.A receivable is recognized on the balance sheet,and the associated benefit is shown on the current year's income statement.

Question 13

Differences between taxable income and pretax accounting income arising from transactions that,under applicable tax laws and regulations,will not be offset by corresponding differences or "turn around" in future periods is a definition of

Accepted Answer

A)  Permanent differences
B)  Timing differences
C)  Intraperiod tax allocation
D)  Interperiod tax allocationE) All of the above
F) A) and B)

Question 14

Which of the following would cause a deferred tax expense?

Accepted Answer

A)  Writedown 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) None of the above
F) A) and D) B

Question 15

Income tax allocation procedures are not appropriate when

Accepted Answer

A)  An extraordinary loss will cause the amount of income tax expense to be less than the tax on ordinary net income
B)  An extraordinary gain will cause the amount of income tax expense to be greater than the tax on ordinary net income
C)  Differences between net income for tax purposes and financial reporting occur because tax laws and financial accounting principles do not concur on the items to be recognized as revenue and expense
D)  Differences between net income for tax purposes and financial reporting occur that will not reverse.E) None of the above
F) A) and B)

Question 16

Discuss the arguments for and against discounting deferred taxes.

Accepted Answer

Proponents of reporting deferred taxes a...

Question 17

Under the comprehensive deferred interperiod method of tax allocation,deferred taxes are determined on the basis of

Accepted Answer

A)  Tax rates in effect when the timing differences originate without adjustment for subsequent changes in tax rates
B)  Tax rates expected to be in effect when the items giving rise to the timing differences reverse themselves
C)  Net valuations of assets or liabilities
D)  Averages determined on an industry-by-industry basisE) A) and C)
F) A) and B)

Question 18

Assuming no prior period adjustments,would the following affect net income? Interperiod Intraperiod
Income tax Income tax
Allocation Allocation

Accepted Answer

A)   Yes Yes
B)   Yes No
C)   No Yes
D)   No NoE) C) and D)
F) A) and C)

Question 19

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 current asset 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) A) and B)
F) None of the above

Question 20

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) A) and B)

Exam 12: Accounting for Income Taxes

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

Correct Answer
verified

Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position?

Correct Answer
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B

Which of the following causes a permanent difference between taxable income and financial accounting income?

Correct Answer
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The accounting recognition of the benefit from a tax loss carryforward in most situations should be reported as

Correct Answer
verified

Describe the use of the valuation allowance for deferred tax assets.

Correct Answer
verified
The deferred tax asset measures potentia...
View Answer

Correct Answer
verified

Which of the following is not affected by tax allocation within a period?

Correct Answer
verified

Correct Answer
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The tax effect of a difference between taxable income and pretax accounting income attributable to losses of a subsidiary is normally recognized for

Correct Answer
verified

Which of the following will result in a deferred tax liability?

Correct Answer
verified

Discuss the rationale behind the calculation of a company's earnings conservatism ratio.

Correct Answer
verified
The rationale for the earnings conservat...
View Answer

Describe the accounting treatment for net operating losses.

Differences between taxable income and pretax accounting income arising from transactions that,under applicable tax laws and regulations,will not be offset by corresponding differences or "turn around" in future periods is a definition of

Correct Answer
verified

Which of the following would cause a deferred tax expense?

Correct Answer
verified
B

Income tax allocation procedures are not appropriate when

Correct Answer
verified

Discuss the arguments for and against discounting deferred taxes.

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

Under the comprehensive deferred interperiod method of tax allocation,deferred taxes are determined on the basis of

Correct Answer
verified

Assuming no prior period adjustments,would the following affect net income? Interperiod Intraperiod Income tax Income tax Allocation Allocation

Correct Answer
verified

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

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

Exam 12: Accounting for Income Taxes

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

Correct AnswerverifiedShow Answer

Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position?

Correct AnswerverifiedB

Which of the following causes a permanent difference between taxable income and financial accounting income?

Correct AnswerverifiedShow Answer

The accounting recognition of the benefit from a tax loss carryforward in most situations should be reported as

Correct AnswerverifiedShow Answer

Describe the use of the valuation allowance for deferred tax assets.

Correct AnswerverifiedThe deferred tax asset measures potentia...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not affected by tax allocation within a period?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The tax effect of a difference between taxable income and pretax accounting income attributable to losses of a subsidiary is normally recognized for

Correct AnswerverifiedShow Answer

Which of the following will result in a deferred tax liability?

Correct AnswerverifiedShow Answer

Discuss the rationale behind the calculation of a company's earnings conservatism ratio.

Correct AnswerverifiedThe rationale for the earnings conservat...View AnswerShow Answer

Describe the accounting treatment for net operating losses.

Differences between taxable income and pretax accounting income arising from transactions that,under applicable tax laws and regulations,will not be offset by corresponding differences or "turn around" in future periods is a definition of

Correct AnswerverifiedShow Answer

Which of the following would cause a deferred tax expense?

Correct AnswerverifiedB

Income tax allocation procedures are not appropriate when

Correct AnswerverifiedShow Answer

Discuss the arguments for and against discounting deferred taxes.

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

Under the comprehensive deferred interperiod method of tax allocation,deferred taxes are determined on the basis of

Correct AnswerverifiedShow Answer

Assuming no prior period adjustments,would the following affect net income? Interperiod Intraperiod Income tax Income tax Allocation Allocation

Correct AnswerverifiedShow 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

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

Correct Answer
verified

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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The deferred tax asset measures potentia...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The rationale for the earnings conservat...
View Answer

Correct Answer
verified

Correct Answer
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B

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

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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