Income Taxes

Question 1

Deferred income tax expense or benefit is equal to the sum of net changes in deferred tax assets and deferred tax liabilities? TF

Answer 1

True

Question 2

FAS 109 (Acctg for income taxes) is based on what acctg concept?

Answer 2

Asset/Liability Approach

Question 3

How do permanent differences distort the effective tax rate?

Answer 3

Permanent differences subtract directly from NI. Tax is then levied on the reduced NI at its amount before the difference causing the effective tax rate to be greater than the statutory tax rate.

Question 4

Are footnotes required if the effective tax rate the the statutory tax rate differ?

Answer 4

Yes

Question 5

What are some common permanent differences, and what is their treatment in dealing with taxable income?

Answer 5

Tax exempt interest
Fines and penalties
Life insurance policies on key employees
Dividends received deductions
Depletion
NON DEDUCTIBLE

Question 6

Temporary differences are recognized in different amounts for books and tax in a given year. TF

Answer 6

True

Question 7

What are the two broad types of temporary differences?

Answer 7

Deferred Tax Assets and Deferred tax liabilities

Question 8

Deferred tax assets represent prepayments to the IRS. TF

Answer 8

True

Question 9

Deferred tax liabilities represent prepayments to the IRS. TF

Answer 9

False. The represent amounts owed in future periods.

Question 10

Best way to solve DTA DTL problems?

Answer 10

JE. Dr. Income tax expense (Total) dr. DTA or cr. DTL cr. Cash to IRS or cr. Income tax payable

Question 11

Life insurance proceeds on death of an officer should be included when computing taxable income? TF

Answer 11

False, they should be subtracted from taxable income.

Question 12

Income from tax exempt municipal bonds should be included in taxable income? TF

Answer 12

False, note “tax exempt”

Question 13

Excess depreciation should be included in taxable income. TF

Answer 13

False

Question 14

DTLs arise from

Answer 14

Future cash inflows that have yet to be taxed

Question 15

DTAs arise from

Answer 15

Taxes paid on items not due yet

Question 16

Formula for taxable income

Answer 16

Taxable income = Pre tax accounting income +/- originating temp diffs +/- permanent diffs

Question 17

Items that are good for the fin statements create…DTA/DTL

Answer 17

DTLs

Question 18

Items that are bad for the fin statements create…DTA/DTL?

Answer 18

DTAs

Question 19

Expense Items: FS > TAX =

Answer 19

A DTL and is ADDED to pre tax income

Question 20

Expense Items: FS

Answer 20

A DTA and is SUBTRACTED from pre tax income

Question 21

Income Items: FS > TAX =

Answer 21

A DTA and is SUBTRACTED from pre tax income

Question 22

Income Items: FS

Answer 22

A DTL and is ADDED to pre tax income

Question 23

Things that are bad for the FS cause DTAs or DTLs in future periods?

Answer 23

DTAs

Question 24

Things that are good for the FS cause DTAs or DTLs in future periods?

Answer 24

DTLs

Question 25

The future tax rate should be used in computation of the DTA or DTL if…

Answer 25

those are going to be the rates in effect when the future tax consequences will be realized

Question 26

The effective tax rate is the rate you actually pay after taxable income is adjusted. TF

Answer 26

True

Question 27

Life insurance premiums are kept or taken away from NI to arrive at taxable income?

Answer 27

Kept

Question 28

Equity income of an investee is taxable. TF

Answer 28

False

Question 29

In computing a DTL, changes in depreciation are treated prospectively. TF

Answer 29

True, no temporary difference is generated from the PAST years. The temporary differences start from the date of change.

Question 30

On the balance sheet non current DTAs and DTLs are show separately. TF

Answer 30

False, netted and shown as “deferred tax”

Question 31

Current and non current deferred tax assets are NOT netted together for balance sheet disclosure. TF

Answer 31

True

Question 32

For a DTA to be recognized what standard must be met?

Answer 32

More likely than not, 50% or greater

Question 33

Value of the NOL carryforward =

Answer 33

NOL x Tax Rate

Question 34

NOLs can be carried back ___ years and carried forward _____ years.

Answer 34

2, 20

Question 35

Current and non-current tax assets and liabilities are disclosed seperately. TF

Answer 35

True

Question 36

Permanent differences (need/do not need) to be disclosed.

Answer 36

do not need

Question 37

Deferred taxes in dealing with percentage depletion = 0. TF

Answer 37

True

Question 38

Under IFRS DTAs and DTLs can only be netted together if…

Answer 38

The are under the same taxing authority

Question 39

Non Current DTA’s and Current DTL’s can be netted together. TF

Answer 39

False, Non current and current anythings cant be netted together, must be the same.