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Deferred Tax

Deferred Tax MCQs

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Which one of the following temporary differences will result in a deferred tax asset?

Use of the straight-line depreciation method for financial statement purposes and the Modified Accelerated Cost Recovery System (MACRS) for income tax purposes.
Installment sale profits accounted for on the accrual basis for financial statement purposes and on a cash basis for income tax purposes.
Advance rental receipts accounted for on the accrual basis for financial statement purposes and on a cash basis for tax purposes.
Investment gains accounted for under the equity method for financial statement purposes and under the cost method for income tax purposes.

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On a statement of financial position, all of the following should be classified as current liabilities except

Advances from customers for services to be performed.
Salaries payable for work performed during the previous month.
Deferred income taxes for differences based on depreciation methods.
Accounts payable for inventory items to be shipped on consignment.

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A liability that represents the accumulated difference between the income tax expense reported on the firmâ€™s books and the income tax actually ...

Capital gains tax.
Deferred taxes.
Taxes Payables
Value-added taxes.

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Harrison Corporation entered into a 3-year contract, using the percentage-of-completion method for financial income and the completed contract method ...

Decrease in the deferred tax asset account.
Decrease in the deferred tax liability account.
Increase in the deferred tax asset account.
Increase in the deferred tax liability account.

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A tax rate other than the current tax rate may be used to calculate the deferred income tax amount on the statement of financial position if a(n)

Future tax rate has been enacted into law.
Future tax rate change is considered more likely than not to occur.
Election has been made to apply past tax rates.
Net operating loss carryback exists

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At the end of its first year in business, Pebbles Corporation reported pretax financial statement income of $50,000. Included in pretax income were $1...

$2,000 as a current liability and $1,600 as a current asset.
$4,000 as a current asset and $5,000 as a noncurrent asset.
$2,000 as a current liability and $1,600 as a noncurrent liability.
$4,000 as a noncurrent liability and $5,000 as a current liability.

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Intraperiod income tax allocation arises because

Items included in the determination of taxable income may be presented in different sections of the financial statements.
Income taxes must be allocated between current and future periods.
Certain revenues and expenses appear in the financial statements either before or after they are included in taxable income.
Certain revenues and expenses appear in the financial statements but are excluded from taxable income.

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Income-tax-basis financial statements differ from those prepared under GAAP because they

Do not include nontaxable revenues and nondeductible expenses in determining income.
Include detailed information about current and deferred income tax liabilities.
Contain no disclosures about capital and operating lease transactions.
Recognize different revenues and expenses in different reporting periods

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When accounting for income taxes, a temporary difference occurs in which of the following scenarios?

An item is included in the calculation of net income but is neither taxable nor deductible.
An item is included in the calculation of net income in one year and in taxable income in a different year.
An item is no longer taxable due to a change in the tax law.
The accrual method of accounting is used.

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When accounting for income taxes, a temporary difference occurs in which of the following scenarios?

An item is included in the calculation of net income but is neither taxable nor deductible.
An item is included in the calculation of net income in one year and in taxable income in a different year.
An item is no longer taxable due to a change in the tax law.
The accrual method of accounting is used.

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Selected financial information for Windham, Inc., for the year just ended is shown below. Pretax income $5,000,000 Intere...

$960,000
$1,360,000
$1,760,000
$2,640,000

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Justification for the method of determining periodic deferred tax expense is based on the concept of

Matching of periodic expense to periodic revenue.
Objectivity in the calculation of periodic expense.
Recognition of assets and liabilities.
Consistency of tax expense measurements with actual tax planning strategies.

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Among the items reported on Cord, Inc.’s income statement for the year ended December 31, year 1, were the following: Payment of penalty $ 5,000 ...

$0
$ 5,000
$10,000
$15,000

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Temporary differences arise when revenues are taxable After they are recognized in financial income Before they are recognized in financial income

Yes Yes
Yes No
No No
No Yes

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

Expenses or losses that are deductible after they are recognized in financial income.
Revenues or gains that are taxable before they are recognized in financial income.
Expenses or losses that are deductible before they are recognized in financial income.
Revenues or gains that are recognized in financial income but are never included in taxable income.

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Dunn Co.â€™s year 1 income statement reported $90,000 income before provision for income taxes. To compute the provision for federal income tax...

$18,000
$22,800
$25,800
$28,800

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Pine Corp.’s books showed pretax income of $800,000 for the year ended December 31, year 1. In the computation of federal income taxes, the follow...

$ 50,000
$ 65,000
$120,000
$135,000

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For the year ended December 31, year 1, Tyre Co. reported pretax financial statement income of $750,000. Its taxable income was $650,000. The differ...

$105,000
$135,000
$195,000
$225,000

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On June 30, year 1, Ank Corp. prepaid a $19,000 premium on an annual insurance policy. The premium payment was a tax deductible expense in Ank’s y...

$5,700
$4,750
$2,850
$2,375

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For the year ended December 31, year 1, Tyre Co. reported pretax financial statement income of $750,000. Its taxable income was $650,000. The differ...

$105,000
$135,000
$195,000
$225,000

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Zeff Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, year 1, it...

$52,000
$56,000
$62,000
$64,000

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Zeff Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, year 1, it...

$2,000
$4,000
$6,000
$8,000

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West Corp. leased a building and received the $36,000 annual rental payment on June 15, year 1. The beginning of the lease was July 1, year 1. Renta...

$ 5,400
$ 7,200
$10,800
$14,400

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Black Co., organized on January 2, year 1, had pretax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, y...

$ 60,000
$ 70,000
$ 85,000
$105,000

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A temporary difference that would result in a deferred tax liability is

Interest revenue on municipal bonds.
Accrual of warranty expense.
Excess of tax depreciation over financial accounting depreciation.
Subscriptions received in advance.

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Orleans Co., a cash-basis taxpayer, prepares accrual basis financial statements. In its year 2 balance sheet, Orleans’ deferred income tax liabili...

I only.
I and II.
II and III.
III only.

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At the end of year one, Cody Co. reported a profit on a partially completed construction contract by applying the percentage-of-completion method. B...

Yes Yes
No Yes
Yes No
No No

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A deferred tax liability is computed using

The current tax laws, regardless of expected or enacted future tax laws.
Expected future tax laws, regardless of whether those expected laws have been enacted.
Current tax laws, unless enacted future tax laws are different.
Either current or expected future tax laws, regardless of whether those expected laws have been enacted.

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For the year ended December 31, year 1, Grim Co.’s pretax financial statement income was $200,000 and its taxable income was $150,000. The differe...

$45,000
$51,000
$60,000
$66,000

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Shear, Inc. began operations in year 1. Included in Shear’s year 1 financial statements were bad debt expenses of $1,400 and profit from an instal...

$300
$360
$650
$780

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Quinn Co. reported a net deferred tax asset of $9,000 in its December 31, year 1 balance sheet. For year 2, Quinn reported pretax financial statemen...

$12,000
$21,000
$30,000
$60,000

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Rein Inc. reported deferred tax assets and deferred tax liabilities at the end of year 1 and at the end of year 2. For the year ended 12/31/Y2, Rein...

Decrease in the deferred tax assets.
Increase in the deferred tax liabilities.
Amount of the current tax liability plus the sum of the net changes in deferred tax assets and deferred tax liabilities.
Sum of the net changes in deferred tax assets and deferred tax liabilities.

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On its December 31, year 2 balance sheet, Shin Co. had income taxes payable of $13,000 and a current deferred tax asset of $20,000 before determinin...

$ 8,000
$ 8,500
$10,000
$13,000

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Under current generally accepted accounting principles, which approach is used to determine income tax expense?

Asset and liability approach.
A “with and without” approach.
Net of tax approach.
Periodic expense approach.

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Bart, Inc., a newly organized corporation, uses the equity method of accounting for its 30% investment in Rex Co.’s common stock. During year 1, R...

$10,800
$ 9,000
$ 5,400
$ 4,500

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Leer Corp.’s pretax income in year 1 was $100,000. The temporary differences between amounts reported in the financial statements and the tax retu...

$26,400
$23,400
$21,900
$18,600

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Dix, Inc., a calendar-year corporation, reported the following operating income (loss) before income tax for its first three years of operations: Y...

$160,000
$120,000
$ 80,000
$ 60,000

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In year 1, Rand, Inc. reported for financial statement purposes the following items, which were not included in taxable income: Installment gain to...

$60,000 $100,000
$60,000 $120,000
$50,000 $100,000
$50,000 $120,000

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In year 1, Rand, Inc. reported for financial statement purposes the following items, which were not included in taxable income: Installment gain to...

$60,000 $100,000
$60,000 $120,000
$50,000 $100,000
$50,000 $120,000

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Because Jab Co. uses different methods to depreciate equipment for financial statement and income tax purposes, Jab has temporary differences that w...

Contra account to current assets.
Contra account to noncurrent assets.
Current liability.
Noncurrent liability.

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At the most recent year-end, a company had a deferred income tax liability arising from accelerated depreciation that exceeded a deferred income tax...

The excess of the deferred income tax liability over the deferred income tax asset as a noncurrent liability.
The excess of the deferred income tax liability over the deferred income tax asset as a current liability.
The deferred income tax liability as a noncurrent liability.
The deferred income tax liability as a current liability.

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On December 31, year 5, Oak Co. recognized a receivable for taxes paid in prior years and refundable through the carryback of all of its year 5 oper...

I only.
I and III.
I, II, and III.
II and III

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The amount of income tax applicable to transactions that are not reported in the continuing operations section of the income statement is computed

By multiplying the item by the effective income tax rate.
As the difference between the tax computed based on taxable income without including the item and the tax computed based on taxable income including the item.
As the difference between the tax computed on the item based on the amount used for financial reporting and the amount used in computing taxable income.
By multiplying the item by the difference between the effective income tax rate and the statutory income tax rate.

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No net deferred tax asset (i.e., deferred tax asset net of related valuation allowance) was recognized in the year 1 financial statements by the Cha...

Income from continuing operations.
Gain or loss from discontinued operations.
Extraordinary gains.
Cumulative effect of accounting changes.

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Which of the following statements is correct regarding the provision for income taxes in the financial statements of a sole proprietorship?

The provision for income taxes should be based on business income using individual tax rates.
The provision for income taxes should be based on business income using corporate tax rates.
The provision for income taxes should be based on the proprietor’s total taxable income, allocated to the proprietorship at the percentage that business income bears to the proprietor’s total income.
No provision for income taxes is required.

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Which of the following is true regarding reporting deferred taxes in financial statements prepared in accordance with IFRS?

Deferred tax assets and liabilities are classified as current and noncurrent based on their expiration dates.
Deferred tax assets and liabilities may only be classified as noncurrent.
Deferred tax assets are always netted with deferred tax liabilities to arrive at one amount presented on the balance sheet.
Deferred taxes of one jurisdiction are offset against another jurisdiction in the netting process.

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Toller Corp. reports in accordance with IFRS. The controller of the company is attempting to prepare the presentation of deferred taxes on Toller’...

Current deferred tax assets are netted against current deferred tax liabilities.
All noncurrent deferred tax assets are netted against noncurrent deferred tax liabilities.
Deferred tax assets are never netted against deferred tax liabilities.
Deferred tax assets are netted against deferred tax liabilities if they relate to the same taxing authority.

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Lucas Company computed the following deferred tax balances for the 2 most recent years. Deferred tax assets are considered fully realizable. - - - - ...

$400,000
$402,000
$404,000
$406,000

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