chapter 16 income taxes Flashcards
Which of the following creates a temporary difference between financial and taxable income?
Accelerated cost recovery on PPE
Which of the following temporary differences ordinarily results in a deferred tax asset?
Accrued warranty costs
Which of the following temporary differences ordinarily results in deferred tax liability?
Depreciation
When enacted tax rates change, the asset and liability method of inter-period tax allocation recognizes the rate change as?
a separate change or benefit to income tax expense
A deferred tax liability arising from the use of an accelerated method of depreciation for tax purposes and the straight-line method for financial reporting purposes would be classified on the balance sheet as
a non current liability
On the statement of cash flows using the indirect method, an increase in the deferred tax liability would be shown as..
an addition to net income
The asset-liability method of interperiod tax allocation currently required by U.S. GAAP is an example of the
comprehensive recognition approach
Historically, the United Kingdom has recognized only those deferred tax liabilities expected to “crystallize” the term crystallize is most nearly synonymous with the term
realized
Which of the following creates a permanent difference between financial income and taxable income?
Interest received on municipal bonds
Which of the following is the most likely item to result in a deferred tax asset.
Unearned Revenues
Which of the following temporary differences ordinarily results in a deferred tax liability
Depreciation
Alpha Company reported net incomes in 2010 and 2011 before sustaining a significant operating loss in 2012. All of the 2012 loss can be carried back against the income of 2010 and 2011 for the purposes of determining the company’s 2012 income tax liability. How should the carryback be presented in the company’s 2012 financial statements?
As a reduction in the operating loss on the income statement for the year 2012
A deferred tax liability arising from the use of an accelerated method of depreciation for tax purposes and the straight line method for financial reporting purposes would be classified on the balance sheet as a
non-current liability
The purpose of an interperiod income tax allocation is to
Recognize an asset or liability for the tax consequences of temporary differences that exist at the balance sheet date
An example of a deductible temporary difference” creating a deferred tax asset occurs when
warranty expenses are recognized on the accrual basis for financial reporting purposes, but recognized as the warranty conditions are met for income tax purposes
Monteblanco Corporation paid $20,000 in January 2013 for premiums on a two-year life insurance policy which names the company as the beneficiary, an item that is never deductible for income tax purposes. Additionally, Monteblanco Corporation’s financial statements for the year ended December 31, 2013, revealed the company paid $105,000 in nondeductible taxes during the year and also accrued estimated litigation losses of $200,000 which aren’t deductible until paid for income tax purposes. Assuming the lawsuit was resolved in February 2014 (at which time a $200,000 loss was recognized for income tax purposes) and that Monteblanco’s tax rate is 30 percent for both 2013 and 2014, what amount should Monteblanco report as asset for net deferred income taxes on its 2013 balance sheet?
60,000
The Wayne Static Company had taxable income of $12,000 during 2013. Wayne Static used accelerated depreciation for income tax purposes ($3,400) and straight-line depreciation for financial accounting purposes ($2,000). Assuming Wayne Static had no other temporary or permanent differences, what would the company’s pretax financial accounting income be for 2013?
$13400 (15400 is the starting point subtract 2000 to get answer, or take the diff and add or sub to amt given)
Recognizing tax benefits in a loss year due to a loss carryforward that will likely be used requires
creating a deferred tax asset
In 2013, Boothe Corporation reported $90,000 of income before income taxes. The tax rate for 2013 was 30 percent. Boothe had an unused $60,000 net operating loss carryforward arising in 2012 when the tax rate was 35 percent. The income tax payable Boothe would report for 2013 would be
a. $6,000.
b. $9,000.
c. $10,500.
d. $27,000.
b. 9000
(90000-60000)*.30= 9000
Prior year rate means nothing to the 2013 calculation
A deferred tax liability arising from the use of an accelerated method of depreciation for income tax purposes and the stratghttline method for financial reporting purposes would be classified on the balance sheet as an
noncurrent liability
On the statement of cash flows using the indirect method, an increase in the deferred tax asset would be shown as an
a deduction from net income
Asset and liability method of intereperiod tax allocation
A method of income tax allocation that determines deferred tax assets or tax liabilities based on the expected future benefit or obligation associated with temporary difference reversals. If tax rates change, the asset or liability balances are adjusted to reflect the tax rates legislated to be in effect in the year when reversal is expected to occur
Deductible temporary differences
Differences between financial and taxable income that will result in deductible amounts in future years; expected benefits (tax savings) are reported on the balance sheet as deferred tax assets.
effective tax rate
Rate computed by dividing reported income tax expense by earnings before income taxes.
interperiod tax allocation
An accounting method that recognizes the tax effect of temporary differences between financial and taxable income in the financial statements rather than reporting as tax expense the actual tax liability in each year. The allocation may be made either by (1) the deferred method or (2) the asset and liability method. The latter method is currently required by GAAP.
permanent differences
Nondeductible expenses or nontaxable revenues that are recognized for financial reporting purposes but that are never part of taxable income
Net Operating Loss (NOL) Carryback
The amount of operating loss that can be carried back and offset against the income of earlier profitable years to obtain a refund of previously paid income taxes. (back 2-forward 20)
Net operating loss (NOL) Carryforward
The amount of operating loss that can be carried forward and offset against income of future profitable years to reduce the tax liability for those years.(back2 forward20)
Financial statement disclosure: the following items must appear in the income statement or an accompanying note:
Current tax expense or benefit
Deferred tax expense or benefit
investment tax credits
government grants recognized as a tax reduction
benefits of NOL carry forwards
adjustments to a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of an enterprise
adjustments in the beginning-of-the-year valuation allowance because of change in circumstances.
Statement of cashflow; Taxes relate to the operating section of the statement of cashflows
US GAAP requires separate disclosure of cash paid for income taxes.
In direct method, just include cash paid for taxes as a separate amount.
In indirect method, a supplementary note is required
Which of the following creates temp diff between financial and taxable income?
Accelerated cost recovery on PPE
