Lesson 11

Question 1

What is the formula is used to compute income tax expense/benefit?

Answer 1

Income Taxes Payable +/- Change in Deferred income taxes = total income tax expense/benefit

Question 2

Income tax expense is often referred to as?

Answer 2

Provision for income taxes

Question 3

What are the 2 types of differences between pretax financial income and taxable income?

Answer 3

1. Temporary
2. Permanent

Question 4

What is taxable temporary differences?

Answer 4

They are differences that will result in taxable amounts in future years when the related assets are recovered.

Question 5

What are deductible temporary differences?

Answer 5

They are differences that will result in deductible amount in future years, when the related book liabilities are settled.

Question 6

Taxable temporary differences are_______, and deductible temporary differences are ______.

Answer 6

1. Deferred tax liabilities (DTL)
2. Deferred tax assets (DTA)

Question 7

Revenues or gains are _______ after they are recognized in financial income.

Answer 7

Taxable

Question 8

Expenses or losses are _________ after they are recognized in financial income.

Answer 8

Deductible

Question 9

What is an originating temporary difference?

Answer 9

It is the initial difference between the book basis and the tax basis of an asset or liability.

Question 10

What is a reversing difference?

Answer 10

It occurs when eliminating a temporary difference that originated in prior period and then removing the related tax affect from the deferred tax amount.

Question 11

What is permanent differences?

Answer 11

It results form items that enter into pretax financial income but never into taxable income or enter into taxable income but never into pretax financial income

Question 12

Permanent differences are not recognized as deferred tax consequences. True or False?

Answer 12

True

Question 13

Gulfport Corporation’s taxable income differed from its accounting income computed for this past year. What item would create a permanent difference in accounting and taxable incomes for Gulfport?

• A balance in the Unearned Rent account at year-end.
• A fine resulting from violations of OSHA regulations.
• Using accelerated depreciation for tax purposes and straight-line depreciation for book purposes.
• Making installment sales during the year.

Answer 13

A fine resulting from violations of OSHA regulations.

Question 14

What is a major distinction between temporary and permanent differences?

Answer 14

Temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

Question 15

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?

• Product warranty liabilities
• Fines and expenses resulting from a violation of law
• Depreciable property
• Advance rental receipts

Answer 15

Product warranty liabilities

Question 16

When can tax rates other than the current tax rate may be used to calculate the deferred income tax amount for financial statement reporting?

Answer 16

When the enacted tax rate is expected to apply in future years.