ACC 312 EXAM 3 QUESTIONS AND CORRECT
ANSWERS
Temporary differences arise when revenues are taxable
After they are recognized in financial income / Before they are recognized in financial
income
No / Yes
No / No
Yes / Yes
Yes / No - Answers - Yes / Yes
Which of the following should be disclosed in a company's financial statements related
to deferred taxes?
I.The types and amounts of existing temporary differences.
II.The types and amounts of existing permanent differences.
III.The nature and amount of each type of operating loss and tax credit carryforward.
II and III only.
I and III only.
I, II, and III.
I and II only. - Answers - I and III only.
Pretax financial income is determined according to the Internal Revenue Code.
True
False - Answers - False
A deferred tax liability is the deferred tax consequence attributable to taxable temporary
differences.
True
False - Answers - True
Future deductible amounts will cause:
a decrease in pretax financial income in future years.
the recording of a deferred tax asset.
taxable income to be more than pretax financial income in the future.
the recording of a deferred tax liability. - Answers - the recording of a deferred tax asset.
Income tax expense is computed as income tax payable:
,less a decrease in a deferred tax asset.
plus or minus the change in deferred income taxes.
plus or minus the change in provision for income taxes.
less an increase in a deferred tax liability. - Answers - plus or minus the change in
deferred income taxes.
All of the following are examples of temporary differences that
result in taxable amounts in future years except:
investments accounted for under the equity method.
installment sales.
subscriptions received in advance.
long-term construction contracts (percentage-of-completion). - Answers - subscriptions
received in advance.
Tax rates other than the current tax rate may be used to calculate the deferred income
tax amount on the balance sheet if
it appears likely that a future tax rate will be less than the current tax rate.
the future tax rates have been enacted into law.
it appears likely that a future tax rate will be greater than the current tax rate.
it is probable that a future tax rate change will occur. - Answers - the future tax rates
have been enacted into law.
A net operating loss (NOL) occurs for tax purposes in a year when tax-deductible
expenses exceed taxable revenues. Companies can reduce future taxable income on
the amount of NOL in the following way:
must always be carried forward 20 years.
may carry the net operating loss forward indefinitely.
may be carried back 2 years or carried forward up to 20 years.
must always be carried back 2 years. - Answers - may carry the net operating loss
forward indefinitely.
Under the asset-liability method, a deferred income tax asset or liability is usually
classified as a
current asset.
non-current asset or liability.
current or non-current based on the classification of the related asset (liability) for
financial reporting purposes.
current or non-current according to the expected reversal date of the temporary
difference. - Answers - non-current asset or liability.
The last step (procedure) in the computation of deferred income taxes is to
, identify the types and amounts of existing temporary differences.
measure deferred tax assets for each type of tax credit carryforward.
measure the total deferred tax asset (liability) using the appropriate tax rate.
reduce deferred tax assets by a valuation allowance if necessary. - Answers - reduce
deferred tax assets by a valuation allowance if necessary.
Fines and penalties resulting from a violation of law result in deferred tax assets.
True
False - Answers - False
Income tax expense is based on:
income from continuing operations.
pretax income.
operating income.
taxable income. - Answers - pretax income.
A deferred tax liability represents the decrease in taxes payable in future years as a
result of a taxable temporary difference.
True
False - Answers - False
Deferred tax expense is the:
increase in a deferred tax asset.
decrease in a deferred tax liability.
increase in a deferred tax liability.
amount of income taxes payable for the period. - Answers - increase in a deferred tax
liability.
A deferred tax liability represents the:
increase in taxes saved in future years as a result of deductible temporary differences.
increase in taxes payable in future years as a result of taxable temporary differences.
decrease in taxes saved in future years as a result of deductible temporary differences.
decrease in taxes payable in future years as a result of taxable temporary differences. -
Answers - increase in taxes payable in future years as a result of taxable temporary
differences.
A valuation account is used to:
reduce a deferred tax liability.
increase a deferred tax liability.
increase a deferred tax asset.
reduce a deferred tax asset. - Answers - reduce a deferred tax asset.
ANSWERS
Temporary differences arise when revenues are taxable
After they are recognized in financial income / Before they are recognized in financial
income
No / Yes
No / No
Yes / Yes
Yes / No - Answers - Yes / Yes
Which of the following should be disclosed in a company's financial statements related
to deferred taxes?
I.The types and amounts of existing temporary differences.
II.The types and amounts of existing permanent differences.
III.The nature and amount of each type of operating loss and tax credit carryforward.
II and III only.
I and III only.
I, II, and III.
I and II only. - Answers - I and III only.
Pretax financial income is determined according to the Internal Revenue Code.
True
False - Answers - False
A deferred tax liability is the deferred tax consequence attributable to taxable temporary
differences.
True
False - Answers - True
Future deductible amounts will cause:
a decrease in pretax financial income in future years.
the recording of a deferred tax asset.
taxable income to be more than pretax financial income in the future.
the recording of a deferred tax liability. - Answers - the recording of a deferred tax asset.
Income tax expense is computed as income tax payable:
,less a decrease in a deferred tax asset.
plus or minus the change in deferred income taxes.
plus or minus the change in provision for income taxes.
less an increase in a deferred tax liability. - Answers - plus or minus the change in
deferred income taxes.
All of the following are examples of temporary differences that
result in taxable amounts in future years except:
investments accounted for under the equity method.
installment sales.
subscriptions received in advance.
long-term construction contracts (percentage-of-completion). - Answers - subscriptions
received in advance.
Tax rates other than the current tax rate may be used to calculate the deferred income
tax amount on the balance sheet if
it appears likely that a future tax rate will be less than the current tax rate.
the future tax rates have been enacted into law.
it appears likely that a future tax rate will be greater than the current tax rate.
it is probable that a future tax rate change will occur. - Answers - the future tax rates
have been enacted into law.
A net operating loss (NOL) occurs for tax purposes in a year when tax-deductible
expenses exceed taxable revenues. Companies can reduce future taxable income on
the amount of NOL in the following way:
must always be carried forward 20 years.
may carry the net operating loss forward indefinitely.
may be carried back 2 years or carried forward up to 20 years.
must always be carried back 2 years. - Answers - may carry the net operating loss
forward indefinitely.
Under the asset-liability method, a deferred income tax asset or liability is usually
classified as a
current asset.
non-current asset or liability.
current or non-current based on the classification of the related asset (liability) for
financial reporting purposes.
current or non-current according to the expected reversal date of the temporary
difference. - Answers - non-current asset or liability.
The last step (procedure) in the computation of deferred income taxes is to
, identify the types and amounts of existing temporary differences.
measure deferred tax assets for each type of tax credit carryforward.
measure the total deferred tax asset (liability) using the appropriate tax rate.
reduce deferred tax assets by a valuation allowance if necessary. - Answers - reduce
deferred tax assets by a valuation allowance if necessary.
Fines and penalties resulting from a violation of law result in deferred tax assets.
True
False - Answers - False
Income tax expense is based on:
income from continuing operations.
pretax income.
operating income.
taxable income. - Answers - pretax income.
A deferred tax liability represents the decrease in taxes payable in future years as a
result of a taxable temporary difference.
True
False - Answers - False
Deferred tax expense is the:
increase in a deferred tax asset.
decrease in a deferred tax liability.
increase in a deferred tax liability.
amount of income taxes payable for the period. - Answers - increase in a deferred tax
liability.
A deferred tax liability represents the:
increase in taxes saved in future years as a result of deductible temporary differences.
increase in taxes payable in future years as a result of taxable temporary differences.
decrease in taxes saved in future years as a result of deductible temporary differences.
decrease in taxes payable in future years as a result of taxable temporary differences. -
Answers - increase in taxes payable in future years as a result of taxable temporary
differences.
A valuation account is used to:
reduce a deferred tax liability.
increase a deferred tax liability.
increase a deferred tax asset.
reduce a deferred tax asset. - Answers - reduce a deferred tax asset.
