Financial Accounting

Question 1

Permanent Differences vs. Temporary Differences

Answer 1

• Temporary differences are included in both accounting income and taxable income.
• Permanent differences are included in only one or the other types of income.
• Timing differences are those incurred in a given year
• Temporary differences are the accumulation of timing differences

Question 2

Deferred Tax Liability

Answer 2

Created when the tax deduction associated with a temporary difference is greater than the amount expenses for accounting purposes

Question 3

Deferred Tax Asset

Answer 3

When temporary differences result in taxable income initially exceeding accounting income

Question 4

Accounting Income –> Taxable Income

Answer 4

Accounting Income

+/-Permanent Differences

+/-Timing Differences

= Taxable Income

Question 5

Defined Benefit Plan

Answer 5

Employer promises to make specified benefit payments after retirement

Question 6

Defined Benefit Plan Calculation

Answer 6

Current Service Cost

+ Interest Cost on DBO

• Expected Return on Plan Assets

+ Amortization of Past Service Costs

+/- Amoritzation of Net Actuarial Loss/Gain

Question 7

Basic EPS Formula

Answer 7

Basic EPS = Net Income - Preferred Share Dividends / Weighted Average # of Shares Outstanding