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A machine with a 10-year useful life is being depreciated on a straight-line basis for fin

A machine with a 10-year useful life is being depreciated on a straight-line basis for financial statement purposes, and over 5 years for income tax purposes under the accelerated recovery cost system. Assuming that the company is profitable and that there are and have been no other timing differences, the related deferred income taxes would be reported in the balance sheet at the end of the first year of the estimated useful life as a

a.Current liability

b.Current asset

c.Noncurrent liability

d.Noncurrent asset

12.Smith Corporation owns only 25 percent of the voting stock of Jones Corporation, but exercises significant influence over its operating and financial policies. The tax effect of differences between taxable income and pretax accounting income attributable to undistributed earnings of Jones Corporation should be

a.Accounted for as a timing difference

b.Accounted for as a permanent difference

c.Ignored because it must be based on estimates and assumptions

d.Ignored because Smith holds less than 51 percent of the voting stock of Jones

13.A company has four “deferred income tax” accounts arising from timing differences involving (1) current assets, (2) noncurrent assets, (3) current liabilities, and (4) noncurrent liabilities. The presentation of these four “deferred income tax “ accounts in the statement of financial position should be shown as

a.A single net amount

b.A net current and a net noncurrent amount

c.Four accounts with no netting permitted

d.Valuation adjustments of the related assets and liabilities that gave rise to the deferred tax

14.A company’s only temporary difference results from using double declining balance depreciation for tax purposes and straight-line depreciation for financial reporting.  The company purchases new plant assets each year.  If currently enacted tax law will result in a higher tax rate for all future tax years, which accounting approach for deferred taxes will result in the lowest net income for this current year?

a.Nonallocation of deferred taxes.

b.Partial allocation of deferred taxes under the asset/liability method.

c.Comprehensive allocation of deferred taxes under the asset/liability method.

d.Comprehensive allocation of deferred taxes under the deferred method.

15.Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position?

a.Income taxes result only from taxable income.

b.Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting.

c.Income taxes are not levied on individual items of income or expense.

d.The current provision for income taxes is a better predictor of future cash flows than is income tax expense that includes deferred taxes.

16.Which of the following is an argument that an advocate of interperiod income tax allocation might use to support his/her position?

a.Income taxes result from taxable income.

b.Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting.

c.Nonallocation of income taxes hides an economic difference between a company that employs tax strategies that reduce current tax payments than one that does not.

d.Income taxes are not incurred in anticipation of future benefits, nor are they expirations of cost to provide facilities to generate revenues.

17.A net operating loss carryover that occurs in a company’s second year of operations

a.May cause a company to report a tax benefit in the current period income statement.

b.Has no effect on income tax expense of the current period because no taxes are paid.

c.Causes a company to report a deferred income tax liability for taxes that are not paid currently.

d.Results in future taxable amounts.

18.Which of the following will result in a deferred tax asset?

a.Using the installment sales method for tax purposes, while using point of sale for financial reporting.

b.Reporting an unrealized gain for a trading security.

c.Using accelerated depreciation for tax purposes and straight-line depreciation for financial reporting.

d.Reporting an expected loss on from a lawsuit in the income statement, when it cannot be reported on the tax return until it is actually incurred.

19.Which of the following will result in a deferred tax liability?

a.A net operating loss carryover.

b.Reporting an unrealized gain for a trading security.

c.Reporting an unrealized gain for an available-for-sale security.

d.Reporting an expected loss on from a lawsuit in the income statement, when it cannot be reported on the tax return until it is actually incurred.

20.Which of the following causes a permanent difference between taxable income and financial accounting income?

a.The useful life of an asset is 10 years.  The asset is depreciated over 7 years for tax purposes.

b.Rent received in advance is taxable upon receipt.

c.A life insurance premium paid by the corporation on a policy that names the corporation as the beneficiary.

d.A penalty paid to a bank when a CD is cashed before its maturity date.

21.Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

a.The deferred method of interperiod income tax allocation

b.Discounting deferred income taxes

c.Nonallocation of income taxes

d.The asset/liability method of income tax allocation.

22.A company that has both short-term deferred tax assets of $22,000, long-term deferred tax liabilities of $36,000, short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

a.A current asset for $22,000, a current liability for $36,000, a long-term asset for $60,000, and a long-term liability for $51,000.

b.A current liability for $14,000 and a long-term asset for $9,000.

c.A current asset for $5,000.

d.A current liability for $14,000, a long-term asset for $60,000, and a long-term liability for $51,000.

23.An increase in the deferred income tax asset valuation allowance

a.Occurs when there is an operating loss carryforward.

b.Has no effect on income tax expense.

c.Occurs when there is an expected increase in future taxable icnome.

d.Increases income tax expense.

 

Dec 09 2019 View more View Less

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