Ch.16 Quiz

Instructions
Please read the questions carefully.

This assessment is worth 100 points.

  1. A temporary difference originates in one period and reverses, or turns around, in a later period.    (2 points)

      
      

  2. Revenues from installment sales of property reported on financial statements in prior years and currently reported on the tax return create deferred tax assets.    (2 points)

      
      

  3. Expenditures currently deducted on the tax return but not included with expenses on the income statement until subsequent years create deferred tax liabilities.    (2 points)

      
      

  4. Deferred tax liabilities can arise from either (a) a revenue being reported on the tax return after the income statement or (b) an expense being reported on the tax return before the income statement.    (2 points)

      
      

  5. Future taxable amounts result in deferred tax assets.    (2 points)

      
      

  6. An expense reported on the income statement that and is never tax deductible results in a deferred tax asset.    (2 points)

      
      

  7. The balance in a deferred tax asset account represents the tax benefit that will arise when temporary differences produce future deductible amounts.    (2 points)

      
      

  8. The basic issue in deciding whether to record a valuation allowance for a deferred tax asset is the availability of sufficient taxable income in future years to offset future deductible amounts.    (2 points)

      
      

  9. Permanent differences between accounting income and taxable income affect taxes payable and deferred taxes.    (2 points)

      
      

  10. Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect.    (2 points)

      
      

  11. A net operating loss that is carried back two years creates a deferred tax asset.    (2 points)

      
      

  12. A net operating loss (NOL) carryforward creates a deferred tax liability that should be classified as current to the extent that the NOL will be recovered in the following year.    (2 points)

      
      

  13. The tax benefit of a net operating loss carried back two years represents a current receivable for income tax to be refunded.    (2 points)

      
      

  14. Current deferred tax assets and current deferred tax liabilities are offset and reported net on the face of the balance sheet.    (2 points)

      
      

  15. Material noncurrent deferred tax assets and noncurrent deferred tax liabilities must be separately reported on the balance sheet.    (2 points)

      
      

  16. The classification of deferred tax assets is sometimes dependent on when the benefit will be realized.    (2 points)

      
      

  17. The amount reported on the balance sheet as deferred tax assets must equal total deferred tax assets as disclosed in the footnotes.    (2 points)

      
      

  18. While intraperiod tax allocation is challenging and controversial, interperiod tax allocation is relatively straightforward and substantially free from controversy.    (2 points)

      
      

  19. Practical considerations weighed heavily in the FASB's decision to permit discounting of deferred tax assets and liabilities.    (2 points)

      
      

  20. All analysts agree that deferred tax liabilities should be factored into the debt to equity ratio.    (2 points)

      
      

  21. In reconciling net income to taxable income, interest earned on municipal bonds is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  22. A net operating loss (NOL) carryforward cannot result in the balance sheet at the end of the NOL year showing:   (2 points)

    a.  
    b.  
    c.  
    d.  

  23. Which of the following causes a permanent difference between taxable income and pretax accounting income?    (2 points)

    a.  
    b.  
    c.  
    d.  

  24. Of the following temporary differences, which one ordinarily creates a deferred tax asset?    (2 points)

    a.  
    b.  
    c.  
    d.  

  25. Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax liability?    (2 points)

    a.  
    b.  
    c.  
    d.  

  26. At the end of the current year, Rentall Inc. has $4,000 of rent received in advance included on its balance sheet. A footnote reveals that the entire $4,000 will be earned in next year. In the absence of other temporary differences, on the balance sheet one would also expect to find a:   (2 points)

    a.  
    b.  
    c.  
    d.  

  27. When tax rates are changed subsequent to the creation of a deferred tax asset or liability, the FASB requires that:   (2 points)

    a.  
    b.  
    c.  
    d.  

  28. If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:   (2 points)

    a.  
    b.  
    c.  
    d.  

  29. The effect of a change in tax rates:   (2 points)

    a.  
    b.  
    c.  
    d.  

  30. For reporting purposes, current deferred tax assets and current deferred tax liabilities are:   (2 points)

    a.  
    b.  
    c.  
    d.  

  31. The valuation allowance account that is used in conjunction with deferred tax assets is a(n):   (2 points)

    a.  
    b.  
    c.  
    d.  

  32. The valuation allowance account that is used in conjunction with deferred taxes relates:   (2 points)

    a.  
    b.  
    c.  
    d.  

  33. For classification purposes, the valuation allowance:   (2 points)

    a.  
    b.  
    c.  
    d.  

  34. Which of the following items creates a deferred tax asset?    (2 points)

    a.  
    b.  
    c.  
    d.  

  35. Under current tax law a net operating loss may be carried back:   (2 points)

    a.  
    b.  
    c.  
    d.  

  36. Under SFAS 109 when there is a net operating loss carryforward:   (2 points)

    a.  
    b.  
    c.  
    d.  

  37. Financial statement disclosure of the components of income tax expense:   (2 points)

    a.  
    b.  
    c.  
    d.  

  38. The tax effect of a net operating loss (NOL) carryback usually:   (2 points)

    a.  
    b.  
    c.  
    d.  

  39. Which of the following statements is TRUE regarding SFAS 109 and its use of the asset and liability approach?    (2 points)

    a.  
    b.  
    c.  
    d.  

  40. Interstate's net income ($ in millions) is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  41. Which of the following must Interstate disclose related to the income tax expense reported on the income statement, ($ in millions of dollars)?    (2 points)

    a.  
    b.  
    c.  
    d.  

  42. Interstate's balance sheet at the end of its first year would report:   (2 points)

    a.  
    b.  
    c.  
    d.  

  43. Baker Co. had taxable income of $4,000, MACRS depreciation of $2,000, book depreciation of $1,000, and accrued warranty expense of $500 on the books although no warranty work was performed. What is Baker's pretax financial income?    (2 points)

    a.  
    b.  
    c.  
    d.  

  44. For the current year ($ in millions), Charlie Corp. had $80 in pretax accounting income. This included bad debt expense of $6 based on the allowance method, and $20 in depreciation expense. Two million in receivables were written off as uncollectible, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Charlie's taxable income?    (2 points)

    a.  
    b.  
    c.  
    d.  

  45. Trace Adkins Inc. had $100 million in taxable income for the current year. Trace also had a decrease in deferred tax assets of $10 million and an increase in deferred tax liabilities of $20 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was:   (2 points)

    a.  
    b.  
    c.  
    d.  

  46. During the current year, Landlord Company had pretax accounting income of $9 million. Landlord's only temporary difference for the year was rent received for the following year in the amount of $3 million. Landlord's taxable income for the year would be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  47. What should Intra report as income from continuing operations?    (2 points)

    a.  
    b.  
    c.  
    d.  

  48. What is Intra's income tax payable for the current year?    (2 points)

    a.  
    b.  
    c.  
    d.  

  49. What should Clark report as the current portion of its income tax expense in the year 2000?    (2 points)

    a.  
    b.  
    c.  
    d.  

  50. What would Clark's income tax expense be in the year 2000?    (2 points)

    a.  
    b.  
    c.  
    d.  



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