ACC 305 WEEK 4 QUIZ 3
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ACC 305 WEEK 4 QUIZ 3
ACC 305 Week 4 Quiz 3 – STR NEW
TRUE-FALSE—Conceptual
1. Taxable income is a tax accounting
term and is also referred to as income before taxes.
2. Pretax financial income is the amount
used to compute income tax payable.
3. Taxable amounts increase taxable
income in future years.
4. 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.
5. Deductible amounts cause taxable
income to be greater than pretax financial income in the future as a result of
existing temporary differences.
6. A deferred tax asset represents the
increase in taxes refundable in future years as a result of deductible
temporary differences existing at the end of the current year.
7. A company reduces a deferred tax
asset by a valuation allowance if it is probable that it will not realize some
portion of the deferred tax asset.
8. Companies should consider both
positive and negative evidence to determine whether it needs to record a
valuation allowance to reduce a deferred tax asset.
9. A company should add a decrease in a
deferred tax liability to income tax payable in computing income tax expense.
10. Taxable temporary differences will
result in taxable amounts in future years when the related assets are
recovered.
11. Examples of taxable temporary
differences are subscriptions received in advance and advance rental receipts.
12. Permanent differences do not give
rise to future taxable or deductible amounts.
13. Companies must consider presently
enacted changes in the tax rate that become effective in future years when
determining the tax rate to apply to existing temporary differences.
14. When a change in the tax rate is
enacted, the effect is reported as an adjustment to income tax payable in the
period of the change.
15. Under the loss carryback approach,
companies must apply a current year loss to the most recent year first and then
to an earlier year.
16. The tax effect of a loss
carryforward represents future tax savings and results in the recognition of a
deferred tax asset.
17. A possible source of taxable income
that may be available to realize a tax benefit for loss carryforwards is future
reversals of existing taxable temporary differences.
18. An individual deferred tax asset or
liability is classified as current or noncurrent based on the classification of
the related asset/liability for financial reporting purposes.
19. Companies should classify the
balances in the deferred tax accounts on the balance sheet as noncurrent assets
and noncurrent liabilities.
20. The FASB believes that the deferred
tax method is the most consistent method for accounting for income taxes.
MULTIPLE CHOICE—Conceptual
21. Taxable income of a corporation
a. differs from accounting income due to differences
inintraperiod allocation
between the two methods of income determination.
b. differs from accounting income due to differences
ininterperiod allocation
and permanent differences between the two methods of income determination.
c. is based on generally accepted accounting
principles.
d. is reported on the corporation’s income
statement.
22 Taxable income of a corporation
differs from pretax financial income because of
Permanent
Temporary
Differences
Differences
a.
No
No
b.
No
Yes
c.
Yes
Yes
d.
Yes
No
23. The deferred tax expense is the
a. increase in balance of deferred tax asset minus
the increase in balance of deferred tax liability.
b. increase in balance of deferred tax liability
minus the increase in balance of deferred tax asset.
c. increase in balance of deferred tax asset plus
the increase in balance of deferred tax liability.
d. decrease in balance of deferred tax asset minus
the increase in balance of deferred tax liability.
24. Machinery was acquired at the
beginning of the year. Depreciation recorded during the life of the machinery
could result in
Future
Future
Taxable
Amounts
Deductible Amounts
a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d.
No
No
P25. A temporary difference arises when a
revenue item is reported for tax purposes in a period
After it is reported Before it is
reported
in financial income in financial
income
a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d.
No
No
S26. At the December 31, 2012 balance
sheet date, Unruh Corporation reports an accrued receivable for financial
reporting purposes but not for tax purposes. When this asset is recovered in
2013, a future taxable amount will occur and
a. pretax financial income will exceed taxable
income in 2013.
b. Unruh will record a decrease in a deferred tax
liability in 2013.
c. total income tax expense for 2011 will exceed
current tax expense for 2013.
d. Unruh will record an increase in a deferred tax
asset in 2013.
P27. 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.
a. item II only
b. items I and II only
c. items II and III only
d. items I and IV only
S28. A major distinction between
temporary and permanent differences is
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 reverse.
S29. Which of the following are temporary
differences that are normally classified as expenses or losses that are
deductible after they are recognized in financial income?
a. Advance rental receipts.
b. Product warranty liabilities.
c. Depreciable property.
d. Fines and expenses resulting from a violation of
law.
S30. Which of the following is a
temporary difference classified as a revenue or gain that is taxable after it
is recognized in financial income?
a. Subscriptions received in advance.
b. Prepaid royalty received in advance.
c. An installment sale accounted for on the accrual
basis for financial reporting purposes and on the installment (cash) basis for
tax purposes.
d. Interest received on a municipal obligation.
S31. Which of the following differences
would result in future taxable amounts?
a. Expenses or losses that are tax deductible after
they are recognized in financial income.
b. Revenues or gains that are taxable before they
are recognized in financial income.
c. Revenues or gains that are recognized in
financial income but are never included in taxable income.
d. Expenses or losses that are tax deductible before
they are recognized in financial income.
32. Stuart 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 incomes for
Stuart would be
a. a balance in the Unearned Rent account at year
end.
b. using accelerated depreciation for tax purposes
and straight-line depreciation for book purposes.
c. a fine resulting from violations of OSHA
regulations.
d. making installment sales during the year.
33. An example of a permanent difference
is
a. proceeds from life insurance on officers.
b. interest expense on money borrowed to invest in
municipal bonds.
c. insurance expense for a life insurance policy on
officers.
d. all of these.
34. Which of the following will not result in a
temporary difference?
a. Product warranty liabilities
b. Advance rental receipts
c. Installment sales
d. All of these will result in a temporary
difference.
35. A company uses the equity method to
account for an investment. This would result in what type of difference and in
what type of deferred income tax?
Type of Difference Deferred
Tax
a.
Permanent
Asset
b.
Permanent
Liability
c.
Temporary
Asset
d.
Temporary
Liability
36. A company records an unrealized loss
on short-term securities. This would result in what type of difference and in
what type of deferred income tax?
Type of Difference
Deferred Tax
a.
Temporary
Liability
b.
Temporary
Asset
c.
Permanent
Liability
d.
Permanent
Asset
37. 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.
a. I and II only.
b. II only.
c. III only.
d. I and III only.
38. Which of the following is not considered a
permanent difference?
a. Interest received on municipal bonds.
b. Fines resulting from violating the law.
c. Premiums paid for life insurance on a company’s
CEO when the company is the beneficiary.
d. Stock-based compensation expense.
S39. When a change in the tax rate is
enacted into law, its effect on existing deferred income tax accounts should be
a. handled retroactively in accordance with the
guidance related to changes in accounting principles.
b. considered, but it should only be recorded in the
accounts if it reduces a deferred tax liability or increases a deferred tax
asset.
c. reported as an adjustment to tax expense in the
period of change.
d. applied to all temporary or permanent differences
that arise prior to the date of the enactment of the tax rate change, but not
subsequent to the date of the change.
40. Tax rates other than the current tax
rate may be used to calculate the deferred income tax amount on the balance
sheet if
a. it is probable that a future tax rate change will
occur.
b. it appears likely that a future tax rate will be
greater than the current tax rate.
c. the future tax rates have been enacted into law.
d. it appears likely that a future tax rate will be
less than the current tax rate.
41. Recognition of tax benefits in the
loss year due to a loss carryforward requires
a. the establishment of a deferred tax liability.
b. the establishment of a deferred tax asset.
c. the establishment of an income tax refund
receivable.
d. only a note to the financial statements.
42. Recognizing a valuation allowance
for a deferred tax asset requires that a company
a. consider all positive and negative information in
determining the need for a valuation allowance.
b. consider only the positive information in
determining the need for a valuation allowance.
c. take an aggressive approach in its tax planning.
d. pass a recognition threshold, after assuming that
it will be audited by taxing authorities.
43. Uncertain tax positions
I. Are positions for which the tax authorities may
disallow a deduction in whole or
in part.
II. Include instances in which the tax law is clear and in
which the company believes
an audit is likely.
III. Give rise to tax expense by increasing payables or
increasing a deferred
tax liability.
a. I, II, and III.
b. I and III only.
c. II only.
d. I only.
44. With regard to uncertain tax
positions, the FASB requires that companies recognize a tax benefit when
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. Any of the above exist.
45. Major reasons for disclosure of
deferred income tax information is (are)
a. better assessment of quality of earnings.
b. better predictions of future cash flows.
c. that it may be helpful in setting government
policy.
d. all of these.
46. Accounting for income taxes can
result in the reporting of deferred taxes as any of the following except
a. a current or long-term asset.
b. a current or long-term liability.
c. a contra-asset account.
d. All of these are acceptable methods of reporting
deferred taxes.
47. Deferred taxes should be presented
on the balance sheet
a. as one net debit or credit amount.
b. in two amounts: one for the net current amount
and one for the net noncurrent 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
accounts.
48. Deferred tax amounts that are
related to specific assets or liabilities should be classified as current or
noncurrent based on
a. their expected reversal dates.
b. their debit or credit balance.
c. the length of time the deferred tax amounts will
generate future tax deferral benefits.
d. the classification of the related asset or
liability.
49. Tanner, Inc. incurred a financial
and taxable loss for 2013. 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 2013 financial statements?
a. The reduction of the loss should be reported as a
prior period adjustment.
b. The refund claimed should be reported as a
deferred charge and amortized over five years.
c. The refund claimed should be reported as revenue
in the current year.
d. The refund claimed should be shown as a reduction
of the loss in 2013.
S50. A deferred tax liability is
classified on the balance sheet as either a current or a noncurrent liability.
The current amount of a deferred tax liability should generally be
a. the net deferred tax consequences of temporary
differences that will result in net taxable amounts during the next year.
b. totally eliminated from the financial statements
if the amount is related to a noncurrent asset.
c. based on the classification of the related asset
or liability for financial reporting purposes.
d. the total of all deferred tax consequences that
are not expected to reverse in the operating period or one year, whichever is
greater.
51. All of the following are procedures
for the computation of deferred income taxes except to
a. identify the types and amounts of existing
temporary differences.
b. measure the total deferred tax liability for
taxable temporary differences.
c. measure the total deferred tax asset for
deductible temporary differences and operating loss carrybacks.
d. All of these are procedures in computing deferred
income taxes.
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