[TFA] Accounting for Income Tax

Question 1

It is the deferred tax consequence attributable to a taxable temporary difference.

a. Deferred tax liability
b. Deferred tax asset
c. Current tax liability
d. Current tax asset

Answer 1

Answer: a. Deferred tax liability

Question 2

It is the deferred tax consequence attributable to a deductible temporary difference and operating loss carryforward.

a. Deferred tax liability
b. Deferred tax asset
c. Current tax liability
d. Current tax asset

Answer 2

Answer: b. Deferred tax asset

Question 3

It is the amount of income tax payable in respect of taxable income.

a. Current tax expense
b. Total income tax expense
c. Deferred tax expense
d. Deferred tax benefit

Answer 3

Answer: a. Current tax expense

Question 4

It is the aggregate amount included in the determination of net income for the period in respect of current tax and deferred tax.

a. Tax expense
b. Current tax expense
c. Deferred tax expense
d. Deferred tax benefit

Answer 4

Answer: a. Tax expense

Question 5

The deferred tax expense is equal to:

a. Increase in deferred tax asset less increase in deferred tax liability
b. Increase in deferred tax liability less increase in deferred tax asset
c. Increase in deferred tax asset
d. Increase in deferred tax liability

Answer 5

Answer: b. Increase in deferred tax liability less increase in deferred tax asset

Question 6

An entity shall offset a deferred tax asset and liability:

a. When the taxes are levied by different taxing authority.
b. When the entity has no legal right to offset.
c. When the taxes are levied by the same taxing authority and the entity has a legal enforceable right to offset a current tax asset against a current tax liability.
d. Under all circumstances.

Answer 6

Answer: c. When the taxes are levied by the same taxing authority and the entity has a legal enforceable right to offset a current tax asset against a current tax liability.

Question 7

Which is correct about deferred tax assets and liabilities?
a. Current deferred tax assets are netted against current deferred tax liabilities.
b. All noncurrent deferred tax assets are netted against noncurrent deferred tax liabilities.
c. Deferred tax assets and liabilities are never netted.
d. Deferred tax assets are netted against deferred tax liabilities if they relate to the same tax authority.

Answer 7

Answer: d. Deferred tax assets are netted against deferred tax liabilities if they relate to the same tax authority.

Question 8

Which is incorrect concerning tax asset and liabilities?

a. Deferred tax asset and liability shall be discounted.
b. Tax asset and liability shall be presented separately from other assets and other liabilities.
c. Deferred tax asset and liability shall be distinguished from current tax asset and liability.
d. Deferred tax asset and liability are noncurrent.

Answer 8

Answer: a. Deferred tax asset and liability shall be discounted.

Question 9

All of the following must be disclosed separately, except:

a. The tax bases of major items on which deferred tax has been calculated.
b. The amount of deductible temporary differences for which no deferred tax asset is recognized.
c. The amount of taxable temporary differences associated with investment in subsidiary and associate for which no deferred tax liability is recognized.
d. The amount of income tax relating to each component of other comprehensive income.

Answer 9

Answer: a. The tax bases of major items on which deferred tax has been calculated.

Question 10

Justification for the method of determining periodic deferred tax expense is based on the concept of:

a. Matching of periodic expense to periodic revenue.
b. Recognition of assets and liabilities.
c. Recognition of revenue and expenses in the period in which they are reported for tax purposes.
d. Consistency in application of accounting procedures.

Answer 10

c. Recognition of revenue and expenses in the period in which they are reported for tax purposes.

Question 11

Which of the following differences would result in future taxable amounts?

a. Expenses and losses that are deductible after they are recognized in financial income.
b. Revenues and gains that are taxable before they are recognized in financial income.
c. Revenues and gains that are taxable after they are recognized in financial income.
d. Expenses and losses that are deductible before they are recognized in financial income.

Answer 11

Answer: c. Revenues and gains that are taxable after they are recognized in financial income

Question 12

A temporary difference which would result in a deferred tax asset is:

a. Tax penalty or surcharge.
b. Dividends received on share investment.
c. Revenue received in advance but recognized for accounting purposes when earned.
d. Depreciation in advance not allowable as a deduction at the time of receipt but deferred for accounting purposes.

Answer 12

Answer: c. Revenue received in advance but recognized for accounting purposes when earned

Question 13

A temporary difference which would result in a deferred tax asset is:

a. Tax penalty or surcharge.
b. Dividends received on share investment.
c. Revenue received in advance but recognized for accounting purposes when earned.
d. Depreciation in advance not allowable as a deduction at the time of receipt but deferred for accounting purposes.

Answer 13

Answer: c. Revenue received in advance but recognized for accounting purposes when earned

Question 14

A cash basis taxpayer prepared accrual basis financial statements. At year end, the deferred tax liability increased. Which would cause the increase in deferred tax liability?

a. An increase in prepaid insurance.
b. An increase in rent receivable.
c. An increase in warranty obligation
d. An increase in prepaid insurance

Answer 14

d. An increase in prepaid insurance

Question 15

An entity reported deferred tax asset and deferred tax liability at the beginning and end of the current year. The entity should report deferred tax expense or benefit equal to the

a. Decrease in the deferred tax asset
b. Increase in the deferred tax liability
c. Amount of the current liability plus the sum of the net changes in deferred tax asset and deferred tax liability
d. Sum of the net changes in deferred tax asset and deferred tax liability

Answer 15

d. Sum of the net changes in deferred tax asset and deferred tax liability

Question 16

Because an entity uses different methods of depreciation for accounting and tax purposes, temporary differences arise. Deferred taxes based on these temporary differences should be classified as:

a. Current asset
b. Noncurrent asset
c. Current liability
d. Noncurrent liability

Answer 16

d. Noncurrent liability

Question 17

A deferred tax liability is computed using:

a. Current tax law regardless of enacted future tax law
b. Expected future tax law whether enacted or not
c. Current tax law unless a future enacted tax law is different.
d. Either current or expected future tax law.

Answer 17

c. Current tax law unless a future enacted tax law is different.

Question 18

Which statement is true regarding reporting deferred income taxes in the financial statements?

a. Deferred tax asset is always netted against deferred tax liability.
b. Deferred taxes of one jurisdiction are offset against another jurisdiction in the netting process.
c. Deferred tax asset and deferred tax liability may only be classified as noncurrent.
d. Deferred tax asset and deferred tax liability are classified as current and noncurrent based on expiration date.

Answer 18

c. Deferred tax asset and deferred tax liability may only be classified as noncurrent.

Question 19

At current year-end, an entity had a deferred tax liability that exceeded a deferred tax asset which is expected to reverse in the next year. Which of the following should be reported in the current year-end statement of financial position?

a. The excess of the deferred tax liability over the deferred tax asset as a noncurrent liability.
b. The excess of the deferred tax liability over the deferred tax asset as a current liability.
c. The deferred tax liability as a noncurrent liability.
d. The deferred tax liability as a current liability.

Answer 19

c. The deferred tax liability as a noncurrent liability.

Question 20

The purpose of intraperiod tax allocation is to:

a. Allow entities to utilize carryforward loss.
b. Allow entities whose tax liabilities vary significantly from year to year to smooth tax payments.
c. Recognize an asset or liability for the tax consequences of temporary differences that exist at year-end.
d. Amortize the deferred tax liability.

Answer 20

c. Recognize an asset or liability for the tax consequences of temporary differences that exist at year-end.

Question 21

Intraperiod tax allocation

a. Involves the allocation of income taxes between current and future periods.
b. Associates tax effect with different items in the income statement.
c. Is not generally acceptable.
d. Arises because different income statement items are taxed at different rates.

Answer 21

b. Associates tax effect with different items in the income statement.

Question 22

Which is true about intraperiod tax allocation?

a. Intraperiod tax allocation is required for the effect of accounting policy allocation arises because certain items are recognized for accounting and tax purposes.
b. Intraperiod tax allocation is required for the effect of accounting policy
c. The purpose is to allocate income tax expense evenly over a number of accounting periods.
d. The purpose is to relate the income tax expense to the items which affect the amount of tax.

Answer 22

d. The purpose is to relate the income tax expense to the items which affect the amount of tax.

Question 23

All would require intraperiod tax allocation, except

a. Discontinued operation
b. Prior period error
c. Gross income
d. Income from continuing operations

Answer 23

c. Gross income

Question 24

Tax expense should be allocated to all, except

a. Discontinued operation
b. Prior period error
c. Gross income
d. Other comprehensive income

Answer 24

c. Gross income