Chapter 19 - Accounting for Income Taxes

Question 1

Income tax expense is based on ____ income.

Pretax, taxable, operating

Answer 1

Pretax

Question 2

An increase in taxes payable in future years as a result of taxable temporary differences is called a ____.

Answer 2

Deferred tax liability

Question 3

An increase in taxes saved in future years as a result of deductible temporary differences is called a ____.

Answer 3

Deferred tax asset

Question 4

A deferred tax valuation allowance account is used to recognize a reduction in a ______.

Answer 4

Deferred tax asset

Question 5

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible after they are recognized in financial income?

Prepaid rent
Product warranties
Depreciable property
Fines

Answer 5

Product warranties

Question 6

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

Answer 6

a deferred tax asset

Question 7

How should deferred taxes be presented on the balance sheet?

Answer 7

In two amounts:

Net current and net noncurrent

Question 8

The FASB believes the most consisted method for accounting for income taxes is the ____ method.

Answer 8

asset-liability

Question 9

A deferred tax expense is a(n) (increase/decrease) in a deferred tax (asset/liability).

Answer 9

Increase/Liability

Question 10

The journal entry to record a reduction in deferred tax asset includes a credit to _____.

Answer 10

Allowance to reduce deferred tax asset to expected realizable value

Question 11

Tax rates other than the current tax rate may be used to calculated the deferred income tax amount on the balance sheet if the future tax rates _____.

Answer 11

have been enacted into law

Question 12

A deferred income tax asset or liability is usually classified as current or concurrent based on what?

Answer 12

The classification of the related asset or liability

Question 13

What is the final step in the computation of deferred income taxes?

Answer 13

Reduce deferred tax assets by a valuation allowance if necessary

Question 14

Income tax payable is based on:

income before taxes, income for book purposes, pretax financial income, taxable income

Answer 14

Taxable income

Question 15

Taxable amounts are temporary differences that require the recording of a ______.

Answer 15

deferred tax liability

Question 16

Depreciation could result in future deductible or taxable amounts. (True/False)

Answer 16

True

Question 17

Future deductible amounts case the recording of a ______.

Answer 17

Deferred tax asset

Question 18

Income tax expense is computed as income tax payable plus or minus what?

Answer 18

The change in deferred income taxes

Question 19

What is the treatment of a net operating loss?

Answer 19

Carried back 2 years or carried forward up to 20 years

Question 20

The increase in the balance of deferred tax liability minus the increase in the balance of deferred tax asset is _____.

Answer 20

Deferred tax expense

Question 21

Pretax financial income is determined according to

the Internal Revenue Code
GAAP

Answer 21

GAAP

Question 22

Proceeds from life insurance carried by the company on key officers or employees is an example of a (temporary/permanent) difference.

Answer 22

Permanent

Question 23

In computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use _____ tax rates.

Answer 23

Average