Module 3 Quiz

Question 1

What is deferred tax expense?

Answer 1

Increase in a deferred tax liability

Question 2

Parker Corporation prepared the following reconciliation for 2020, its first year of operations:

Pretax financial income for 2020: $2,060,000

Tax exempt interest: $(350,000)

Originating temporary difference: $690,000

Taxable income is $1,020,000

The temporary difference will reverse evenly over the next two years at an enacted tax rate of 35%. The enacted tax rate for 2020 is 30%.

Which amount should Parker report in its 2020 income statement as the deferred portion of the provision for income taxes?

Answer 2

$241,500

The deferred portion of the provision for income taxes is $241,500 or ($690,000 x 0.35).

Question 3

How should deferred taxes be presented on the balance sheet?

Answer 3

As a noncurrent amount

Question 4

How does taxable income of a corporation differ for financial and tax purposes?

Answer 4

It differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting.

Question 5

What is an example of a permanent difference?

Answer 5

Interest received on state and municipal obligations