Income Taxes

Question 1

Excess of Percentage Depletion

Answer 1

example of a permanent difference resulting from an expense not allowed in computing financial income, but permitted in computing taxable income.

Question 2

Enacted Tax Rate

Answer 2

he tax rate that is used to measure deferred tax liabilities and deferred tax assets expected to apply to taxable income in the years that the liability is expected to be settled or the asset recovered

Question 3

Valuation Allowance Reporting

Answer 3

The effect of a change in the opening balance of a valuation allowance that results from a change of circumstances ordinarily is included in income from operations.

Question 4

Income Tax Expense Allocation

Answer 4

among continuing operations, discontinued operations, extraordinary items, and items charged or credited directly to shareholders’ equity’

Question 5

Intra Period Tax Allocation

Answer 5

allocating income taxes to key components of the income statement. Operating income is not subject to intra-period tax allocation.

Question 6

NOL Reporting

Answer 6

the manner of reporting the tax benefits of an operating loss carryforward or carryback is determined by the source of the income (or loss) in the current year and not by the source of the operating loss carryforward or taxes paid in a prior year.

Question 7

Uncertain Tax Position

Answer 7

recognized only when the management has a more-likely-than-not level of confidence that the said position will be sustained by the tax authorities on technical grounds.

Question 8

Asset and Liability Method

Answer 8

Deferred income tax expense or benefit is calculated using the asset and liability method. Under this approach, deferred income tax expense or benefit is equal to the sum of the net changes in deferred taxes assets and deferred tax liabilities on the balance sheet.

Question 9

Estimate of Effective Tax Rate

Answer 9

The best estimate of the effective tax rate to be applicable for the full fiscal year be made at the end of each interim period.

Question 10

Increase in Prepaid Insurance

Answer 10

can cause an increase in deferred tax liabilities because an expense deducted this period for tax purposes but deferred for financial accounting purposes will cause future taxable amounts.

Question 11

Increase in Rent Receivable

Answer 11

can cause an increase in deferred tax liabilities because a revenue accrued for book purposes but not recognized for tax purposes until it is collected will give rise to future taxable amounts.

Question 12

Deferred Tax Liability

Answer 12

represents the deferred tax consequences attributable to taxable temporary differences. An increase in cumulative temporary differences giving rise to future taxable amounts

Question 13

Increase in Warranty Obligations

Answer 13

can cause an increase in deferred tax assets rather than deferred tax liabilities.

Question 14

Temporary Difference

Answer 14

An expense accrued for book purposes, but deducted for tax purposes when paid

Question 15

Deferred Tax Asset

Answer 15

the deferred tax consequences attributable to deductible temporary differences and carry forwards

Question 16

Deductible Expenses

Answer 16

create a difference between the tax basis of an asset or liability and its reported amount in the financial statements. These differences result in taxable or deductible amounts in a future period(s) when the reported amount of the related asset or liability is recovered or settled, respectively.

Question 17

GAAP Treatment

Answer 17

separate netting of deferred tax assets and liabilities resulting in a single non-current amount to be reported on the balance sheet.