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