acct 253 ch 19

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acct 253 ch 19
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2010-07-22 11:32:32
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acct 253 ch 19
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  1. Income tax payable is based (computed) on
    A. income before taxes
    B. pretax financial income
    C. taxable income
    D. income for book purposes
    C. taxable income
    (this multiple choice question has been scrambled)
  2. Taxable amounts are temporary differences that
    A. require the recording of a deferred tax liability
    B. decrease taxable income in future years
    C. require the recording of a deferred tax asset
    D. increase pretax financial income in future years
    A. require the recording of a deferred tax liability
    (this multiple choice question has been scrambled)
  3. Which of the following statements related to a deferred tax liability is incorrect?
    A. all of the options are correct
    B. it represents a future sacrifice
    C. it results from a past transaction
    D. it is a future obligation
    D. it is a future obligation
    (this multiple choice question has been scrambled)
  4. Future deductible amounts will cause
    A. a decrease in pretax financial income in future years
    B. the recording of a deferred tax asset
    C. taxable income to be more than pretax financial income in the future
    D. the recording of a deferred tax liability
    B. the recording of a deferred tax asset
    (this multiple choice question has been scrambled)
  5. a deferred tax valuation allowance account is used to recognize a reduction in
    A. both a deferred tax asset and deferred tax liability
    B. income tax expense
    C. a deferred tax asset only
    D. a deferred tax liability only
    C. a deferred tax asset only
    (this multiple choice question has been scrambled)
  6. Income tax expense is computed as income tax payable
    A. plus or minus the change in provision for income taxes
    B. less an decrease in a deferred tax asset
    C. plus or minus the change in deferred income taxes
    D. less an increase in deferred tax liability
    C. plus or minus the change in deferred income taxes
    (this multiple choice question has been scrambled)
  7. All of the following are examples of temporary differences that result in taxable amounts in future years except
    A. investments accounted for under the equity method
    B. subscriptions received in advance
    C. installment sales
    D. long-term construction contracts
    B. subscriptions received in advance
    (this multiple choice question has been scrambled)
  8. Which of the following is not a permanent difference?
    A. fines resulting from a violation of law
    B. interest received on municipal obligations
    C. litigation accruals
    D. proceeds from life insurance carried on key officers
    C. litigation accruals
    (this multiple choice question has been scrambled)
  9. Deferred income taxes are based on the
    A. future tax rates if they have been enacted into law
    B. current tax rate in all cases
    C. current tax rate or future tax rates, depending on when the temporary difference will reverse
    D. future tax rates in all cases
    A. future tax rates if they have been enacted into law
    (this multiple choice question has been scrambled)
  10. A net operating loss
    A. must always be carried back 2 years
    B. occurs when a company reports a net loss in their income statement
    C. may be carried back 2 years or carried forward up to 20 years
    D. must always be carried forward 20 years
    C. may be carried back 2 years or carried forward up to 20 years
    (this multiple choice question has been scrambled)
  11. Which of the following statements related to loss carrybacks and carryforwards is correct?
    a. the benefit due to a loss carryforward is reported only in the loss year
    b. the benefit due to a loss caryfoward can be reported in both the loss year and future years
    c. the benefit due to a loss carryback is reported only in the 2nd year preceding the loss year
    d. the benefit due to a loss carryback can be reported in both the loss year and future years
    • b. the benefit due to a loss caryfoward can be reported in both the loss
    • year and future years
  12. Deferred income taxes are usually classified as
    a. current or noncurrent based on the classification of the related asset (liability) for financial reporting purposes
    b. noncurrent assets or noncurrent liabilities
    c. current or noncurrent according to the expected reversal date of the temporary difference
    d. current assets or current liabilities
    • a. current or noncurrent based on the classification of the related
    • asset (liability) for financial reporting purposes
  13. Income tax expense should be accepted to all of the following except
    A. cumulative effect of account changes
    B. prior period adjustments
    C. discontinued operations
    D. unusual or infrequent items
    D. unusual or infrequent items
    (this multiple choice question has been scrambled)
  14. All of the following are possible sources of taxable income available to realize a tax benefit for deductible temporary differences except
    A. taxable income in prior carryback years if carryback is permittd
    B. future taxable inceom exclusive of reversing temporary differences
    C. future reversals of existing deductible temporary differences
    D. tax planning strategies that would accelerate taxable amounts to utilize expireing carryforward
    C. future reversals of existing deductible temporary differences
    (this multiple choice question has been scrambled)
  15. The last procedure (step) in the computation of deferred income taxes is to
    A. measure the total deferred tax asset (liability) using the appropriate tax rate
    B. identify the types and amounts of existing temporary differences
    C. measure deferred tax assets for each type of tax credit carryforward
    D. reduce deferred tax assets by a valuation allowance if necessary
    D. reduce deferred tax assets by a valuation allowance if necessary
    (this multiple choice question has been scrambled)
  16. Pretax financial income is determined according to the Internal Revenue Code.
    False
  17. A deferred tax liability represents the increase in taxes payable in future years as a result of a taxable temporary differences
    True
  18. Permant diferrences reslt in deferred tax consequences
    False
  19. A loss carryback may be foregone and used as a loss carryforward for up to 20 years.
    True
  20. The valuation allowance account shoud be evaluated at the end of each accounting period
    True
  21. Proceeds from life insurance carried by the company on key officers or employees is an example of a temporary difference.
    False
  22. A deferred tax asset is the deferred tax consequence attributable to deductible temporary differences
    True
  23. A deferred tax liability is the deferred tax consequence attributable to taxable temporary differences
    true
  24. Taxable temporary differences give rise to recording deferred tax assets
    false
  25. 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
  26. Income tax expense is based on
    A. operating income
    B. taxable income
    C. pretax income
    D. income from continuing operations
    C. pretax income
    (this multiple choice question has been scrambled)
  27. Deferred tax expense is the
    A. decrease in a deferred tax liability
    B. decrease in a deferred tax asset
    C. increase in a deferred tax liability
    d. none of the above
    C. increase in a deferred tax liability
    (this multiple choice question has been scrambled)
  28. A deferred tax liability represents the:
    A. increase in taxes saved in future years as a result of deductible temporary differences
    B. decrease in taxes payable in future years as a result of taxable temporary differences
    C. decrease in taxes saved in future years as a result of deductible temporary differences
    D. increase in taxes payable in future years as a result of taxable tempory differences
    D. increase in taxes payable in future years as a result of taxable tempory differences
    (this multiple choice question has been scrambled)
  29. A deferred tax asset represents the:
    A. increase in taxes saved in future years as a result of deductible temporary differences
    B. decrease in taxes saved in future years as a result of a deductible temporary differences
    C. increase in taxes payable in future years as a result of deductible temporary differences
    D. decrease in taxes payable in future years as a result of deductible temporary differences
    A. increase in taxes saved in future years as a result of deductible temporary differences
    (this multiple choice question has been scrambled)
  30. A valuation account is used to:
    A. reduce a deferred tax liability
    B. reduce a deferred tax asset
    C. increase a deferred tax liability
    D. increase a deferred tax asset
    B. reduce a deferred tax asset
    (this multiple choice question has been scrambled)
  31. All of the following are examples of temporary differences that result in tax deductions in future years except:
    A. product warranty liabilities
    B. litigations accruals
    C. depreciable property
    D. estimated liabilities related to discontinued operations
    C. depreciable property
    (this multiple choice question has been scrambled)
  32. Which of the following is not an example of a temporary difference that will result in a deductible amount in future years?
    A. unearned subscriptions
    B. advanced rental receipts
    C. installment sales
    D. royalties received in advance
    C. installment sales
    (this multiple choice question has been scrambled)
  33. Which of the following is a permanent difference?
    A. interest received on state and municipal obligations
    B. installment sales of accounted for on an accrual basis
    C. product warranty liablities
    D. deductible pension funding exceeding expense
    A. interest received on state and municipal obligations
    (this multiple choice question has been scrambled)
  34. In computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the:
    A. graduated rates
    B. incremental rates
    C. actual rates
    D. average rates
    D. average rates
    (this multiple choice question has been scrambled)
  35. The FASB believes that the most consistant method for accounting for income taxes in the:
    A. benefit obligation method
    B. asset liability method
    C. carrback-carryforward method
    D. temporary permanant method
    B. asset liability method
    (this multiple choice question has been scrambled)
  36. Taxable income of a corporations
    a. differs from accounting income due to differences in intraperiod allocation between the 2 mthods of income determination
    b. differs from accounting income due to differences in intraperiod allocaction and permanent differences between the 2 mthods of income determination
    c. is based on generally accepted accounting princples
    d. is reported on the corporation's income statement
    • b. differs from accounting income due to differences in intraperiod
    • allocaction and permanent differences between the 2 mthods of income
    • determination
  37. Taxable income of a corporation differs from pretax financial income because of
    Permanent differences/temporary differences
    A. no/yes
    B. yes/no
    C. no/no
    D. yes/yes
    D. yes/yes
    (this multiple choice question has been scrambled)
  38. Interperiod income tax allocation causes
    a. 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
    b. tax expense shown in the income statement to bear a normal relations to the tax liability
    c. tax liability shown in the balance sheet to bear a normal relation to the income before tax reported in the income statement
    d. tax expense in the income statement to be presented with the specific revenues causing the tax
    • a. 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
  39. The deferred tax expense is the
    A. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset
    B. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability
    C. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability
    D. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability
    A. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset
    (this multiple choice question has been scrambled)
  40. 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
    B. recognize a distribution of earnings to the taxing agency
    C. adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet.
    D. reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements
    A. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date
    (this multiple choice question has been scrambled)
  41. 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
    B. the amount of deferred tax consequences attributed to temporary differences that result in net deductible amounts in future years
    C. the amount of deferred tax consequences attributed to temporary differences that result in net taxable amounts in future years
    D. an income item partially recognized for financial purposes but fully recognized for tax purposes in any one year
    A. an income item fully recognized for tax and financial purposes in any one year
    (this multiple choice question has been scrambled)
  42. Interperiod tax allocation results in a deferred tax liability from
    A. the amount of deferred tax consequences attrbuted to temporary differences that result in net dedutible amounts in future years
    B. an income item fully recognized for tax and financial purposes in any one year
    C. an income item partially recognized for financial purposes but fully recognized for tax purposes in any one year
    D. the amount of deferred tax consequences attributed to temporary differences that result in net taxable amounts in future years
    B. an income item fully recognized for tax and financial purposes in any one year
    (this multiple choice question has been scrambled)
  43. Interperiod income tax allocation procedures are appropriate when
    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 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
    • 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
  44. A temporary difference arises when a revenue item is reported for tax purposes in a period
    after reported in financial/before reported in finacial
    A. yes/no
    B. yes/yes
    C. no/yes
    D. no/no
    B. yes/yes
    (this multiple choice question has been scrambled)
  45. 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. items I and II only
    B. item II only
    C. items I and IV only
    D. items II and III only
    D. items II and III only
    (this multiple choice question has been scrambled)
  46. A major distincition between temporary and permanent differences is
    A. 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
    B. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse
    C. permanent differences are not representive of acceptable accounting practice
    D. temprorary differences occur frequently, whereas permanent differences occur only once
    B. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse
    (this multiple choice question has been scrambled)
  47. 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 accural basis for financial reporting purposes and on the installment (cash) basis for tax purposes
    d. interest received on a municipal obligations
    • c. 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
  48. 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
    A. making installment sales during the year
    B. a balance in the uneared rent account at year end
    C. a find resulting from violations of OSHA regulations
    D. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes
    C. a find resulting from violations of OSHA regulations
    (this multiple choice question has been scrambled)
  49. An example of a permant difference is
    A. all of these
    B. proceeds from life insuance on officers
    C. insurance expense for a life incurance policy on officers
    D. interest expense on money borrowed to invest in municipal bonds
    A. all of these
    (this multiple choice question has been scrambled)
  50. Which of the following will not result in a temporary difference?
    A. all of these will result in a temporary difference
    B. advance rental receipts
    C. installment sales
    D. product warranty liabilities
    A. all of these will result in a temporary difference
    (this multiple choice question has been scrambled)
  51. 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. reported as an adjustment to tax expense in the period of change
    C. 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
    D. considered, but it should only be recorded in the accounts if it reduces a deferred tax liabiltiy or increase a deferred tax asset
    B. reported as an adjustment to tax expense in the period of change
    (this multiple choice question has been scrambled)
  52. Recognition of tax benefits in the loss year due to a loss carry forward requires
    A. the establishment of a deferred tax liability
    B. the establishment of an income tax refund receivable
    C. only a note to the financial statements
    D. the establishment of a deferred tax asset
    D. the establishment of a deferred tax asset
    (this multiple choice question has been scrambled)
  53. Deferred taxes should be presented on the balance sheet
    A. in 2 amounts: one for the net debit amount and one for the net credit amount
    B. in 2 amounts: one for the net current amount and one for the net noncurrent amount
    C. as one net debit or credit amount
    D. as reductions of the related asset or liability accounts
    B. in 2 amounts: one for the net current amount and one for the net noncurrent amount
    (this multiple choice question has been scrambled)
  54. Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on
    A. their expected reveral dates
    B. the length of time the deferred tax amounts will generate future tax deferral benefits
    C. their debit or credit balance
    D. the classification of the related asset or liability
    D. the classification of the related asset or liability
    (this multiple choice question has been scrambled)
  55. 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?
    A. the refund claimed should be shown as a reduction of the loss in 2007.
    B. the reduction of the loss should be reported as a prior period adjustment
    C. the refund claimed should not be reported as revenue in the current year
    D. the refund claimed should be reported as a deferred charge and amortized over five years
    A. the refund claimed should be shown as a reduction of the loss in 2007.
    (this multiple choice question has been scrambled)

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