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 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.


Answer: based on the classification of the related asset or liability for financial reporting purposes

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be:

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.


Answer: reported as an adjustment to tax expense in the period of change

Which of the following differences would result in future taxable amounts?

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.


Answer: Expenses or losses that are tax deductible before they are recognized in financial
income

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

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.


Answer: An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes

Which of the following is a permanent difference that is recognized for tax purposes but not for financial reporting purposes?

Which of the following is a permanent difference that is recognized for tax purposes but not for financial reporting purposes?

A. The deduction for dividends received from U.S. corporations.
B. Interest received on state and municipal bonds.
C. Compensation expense associated with certain employee stock options.
D. A litigation accrual.


Answer: The deduction for dividends received from U.S. corporations

The use of accelerated depreciation for tax purposes and straight-line depreciation for accounting purposes results in:

The use of accelerated depreciation for tax purposes and straight-line depreciation for accounting purposes results in:

A. a larger amount of depreciation expense shown on the tax return than on the
income statement, over the asset's useful life.
B. the asset being fully depreciated for tax purposes in half the time it takes to
become fully depreciated for accounting purposes.
C. a larger amount of depreciation expense shown on the income statement than on the tax return in the last year of the asset's useful life.
D. a loss on the sale of the asset in question if it is sold for its book value before its
useful life expires.


Answer: a larger amount of depreciation expense shown on the income statement than on
the tax return in the last year of the asset's useful life

A major distinction between temporary and permanent differences is:

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.


Answer: temporary differences reverse themselves in subsequent accounting periods,
whereas permanent differences do not reverse

All of the following are procedures for the computation of deferred income taxes except to

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.


Answer: measure the total deferred tax asset for deductible temporary differences and operating loss carrybacks

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 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.


Answer: based on the classification of the related asset or liability for financial reporting purposes

Tanner, Inc. incurred a financial and taxable loss for 2015. 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 2015 financial statements?

Tanner, Inc. incurred a financial and taxable loss for 2015. 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 2015 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 2015.


Answer: The refund claimed should be shown as a reduction of the loss in 2015

Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on

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.


Answer: the classification of the related asset or liability

Deferred taxes should be presented on the balance sheet

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.


Answer: in two amounts: one for the net current amount and one for the net noncurrent amount

Accounting for income taxes can result in the reporting of deferred taxes as any of the following except

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.


Answer: a contra-asset account

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

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. predicting future cash flows for operating loss carryforwards.
d. All of these answer choices are correct.


Answer: All of these answer choices are correct.

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

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.


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

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.

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.


Answer: I only

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

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.


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

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

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.


Answer: the establishment of a deferred tax asset

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

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.


Answer: the future tax rates have been enacted into law

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be

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 income 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.


Answer: reported as an adjustment to income tax expense in the period of change