chapter 18

Question 1

possible sources of taxable income available to realize a tax benefit for deductible temporary differences

Answer 1

future income exclusive of reversing temporary differences and carry forwards
future reversals of existing taxable temporary differences
tax planning strategies that would accelerated taxable amounts to utilize expiring carry forwards

Question 1

all of the following are examples of temporary differences that result in taxable amounts in future years except:
a) installment sales
b)investments accounted for under the equity methods
c) long term construction contracts
d) subscriptions received in advance

Answer 1

d)

Question 2

Future deductible amounts will cause

Answer 2

the recording of a deferred tax asset

Question 3

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if

Answer 3

the future tax rates have been enacted into law

Question 4

a net operating loss occurs for tax purposes in a year when tax deductible expenses exceed taxable revenues companies can reduce future taxable income on the amount of NOL in the following way

Answer 4

may carry the net operating loss forward indefinitely

Question 5

under the asset-liability method a deferred income tax asset or liability is usually classified as a

Answer 5

non current asset or liability

Question 6

deferred tax expense is the total amount of income taxes that will be payable in the subsequent fiscal period

Answer 6

false

Question 6

a deferred tax liability represents the decrease in taxes payable in future years as a result of a taxable temporary difference

Answer 6

false

Question 6

income tax expense is based on

Answer 6

pre tax income

Question 7

a valuation account is used to

Answer 7

reduce a deferred tax asset

Question 7

a deferred tax liability represents the

Answer 7

increase in taxes payable in the future years as a result of taxable temporary differences

Question 8

a deferred tax valuation allowance account is used to recognize a reduction in

Answer 8

a deferred tax asset only

Question 8

Gulfport Corporation 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 Gulfport would be

Answer 8

a fine resulting from violations of occupational safety and health administration regulations

Question 9

which of the following are temporary differences that are normally classified as expenses or losses and are deductible after they are recognized in financial income
a) advance rental receipts
b)product warrant liabilities
c) depreciation property
d) fines and expenses resulting from a violation of law

Answer 9

product warrant liabilities

Question 10

permanent differences result in deferred tax consequences

Answer 10

false

Question 11

tax rates other than the current tax rate may be used to calculate the deferred income tax amount for financial statement reporting if

Answer 11

the enacted tax rate is expected to apply in future years

Question 12

the deferred tax expense is the

Answer 12

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

Question 13

the FASB believes that the most consistent method for accounting for income taxes is the

Answer 13

asset-liability method

Question 14

using the asset-liability method, deferred taxes should be classified into a net current amount and a net non-current amount

Answer 14

false

Question 15

income tax payable is based (computed) on

Answer 15

taxable income

Question 16

taxable amounts are temporary differences that

Answer 16

require the recording of a deferred tax liability

Question 17

a deferred tax liability represents the

Answer 17

increase in taxes payable in future years as a result of taxable temporary differences

Question 18

taxable temporary differences give rise to recording deferred tax assets

Answer 18

false

Question 19

a deferred tax asset represents the

Answer 19

increase in taxes saved in future years as s result of deductible temporary differences

Question 20

a deferred tax asset represents a

Answer 20

future tax benefit

Question 21

a deferred tax valuation allowance account is used to recognize a reduction in

Answer 21

a deferred tax asset only

Question 22

which of the following is a permanent difference a)installment sales accounted for on an accrual basis b)product warranty liabilities c)deductible pension funding exceeding expense d)interest received on state and municipal obligations

Answer 22

d)interest received on state and municipal obligations

Question 23

income tax expense is determined based on all of the following except a)pretax financial income b)income for financial reporting purposes c)income for book purposes d)taxable income

Answer 23

taxable income

Question 24

in computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the

Answer 24

average rates

Question 25

recognition of tax benefits in the loss year due to a loss carryforward requires

Answer 25

the establishment of a deferred tax asset

Question 26

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

Answer 26

as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities

Question 27

the last procedure (step) in the computation of deferred income taxes is to

Answer 27

reduce deferred tax assets by a valuation allowance of necessary

Question 28

under the asset-liability method, the measurement of current and deferred tax liabilities and assets is based provisions of the anticipated future tax law

Answer 28

false

Question 29

Under GAAP companies using the asset-liability method should classify all deferred taxes as non-current

Answer 29

true

Question 30

all of the following are examples of temporary differences that result in tax deductions (benefits) in future years, except a)product warranty liabilities b)litigation accruals c)depreciable property d)estimated liabilities related to discontinued operations

Answer 30

depreciable property

Question 31

taxable income of a corporation

Answer 31

differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting

Question 32

deferred tax expense is the

Answer 32

change in the deferred tax liability balance from the beginning to the end of the accounting period

Question 33

recognizing a valuation allowance for a deferred tax asset requires that a company

Answer 33

consider all positive and negative information in determining the need for a valuation allowance

Question 34

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

Answer 34

differences would result in future taxable amounts

Question 35

Stuart Corporation 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

Answer 35

a fine resulting from violations on OSHA regulations

Question 36

an example of a permanent difference is

Answer 36

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

Question 37

interest received on municipal obligations

Answer 37

will not result in a temporary differnce

Question 38

which temporary differences result in a deferred tax asset in the year the temporary difference originates

Answer 38

accrual for product warranty liability subscriptions received in advance

Question 39

not considered a permanent difference

Answer 39

stock based compensation expense

Question 40

recognition of tax benefits in the loss year due to a loss carry forward requires

Answer 40

the establishment of a deferred tax asset

Question 41

uncertain tax positions

Answer 41

are positions for which the tax authorities may disallow a deduction in whole or in part

Question 42

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

Answer 42

it is more likely that not that the tax position will be sustained upon audit

Question 43

major reasons for disclosure of deferred income tax information is (are)

Answer 43

better assessment of the quality of earnings better predictions of future cash flows predicting future cash flows for operating loss carry forwards

Question 44

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

Answer 44

a noncurrrent liability

Question 45

companies are permitted to offset any balances in income taxes payable against

Answer 45

related income tax refund receivable or prepaid income taxes balances

Question 46

companies are required to disclose the total of each except

Answer 46

all deferred tax assets all deferred tax liabilities the total valuation allowance

Question 47

procedures for the computation of deferred income taxes

Answer 47

identify the types and amounts of existing temporary differences measure the total deferred tax liability temporary differences determine taxes payable

Question 48

not a procedure for the computation of deferred income taxes

Answer 48

measure the total deferred tax liability for deductible temporary differences

Question 49

future deductible amounts will cause

Answer 49

the recording of a deferred tax asset

Question 50

income tax expense is computed as income tax payable

Answer 50

plus or minus the change in deferred income taxes