Income Taxes (Non-Graded Assessment)

All of the following can result in a temporary difference between pretax financial income and taxable income exceptfor

• payment of premiums for life insurance.

• depreciation expense.

• provision for pending lawsuits.

• product warranty costs.

Which of the following items results in a temporary difference deductible amount for a given year?

• Premiums on officer's life insurance (company is beneficiary)

• Recognition of unrealized gains on financial liabilities that are measured at fair value through profit or loss.

• Vacation pay accrual

• Accelerated depreciation for tax purposes; straight-line for financial reporting purposes

Which of the following temporary differences may result to a deferred tax liability?

• Accrued warranty costs

• Subscription revenue received in advance

• Unrealized losses on held for trading securities

• Depreciation

When enacted tax rates change, the asset and liability method of interperiod tax allocation recognizes the rate change as

• a cumulative effect adjustment.

• an adjustment to be netted against the current income tax expense.

• a separate charge to the current year's net income.

• a separate charge or benefit to income tax expense.

Current financial reporting standards currently are moving toward the

• no-deferral approach.

• partial recognition approach.

• comprehensive recognition approach.

• discounted comprehensive recognition approach.

If all temporary differences entering into the determination of pretax accounting income are considered in the computation of deferred taxes and income tax expense, then

• the no-deferral approach is being applied.

• the comprehensive recognition approach is being applied.

• the partial recognition approach is being applied.

• the net-of-tax method is being applied.

If there is a change in the tax rate applicable in future periods, which of the following statements is incorrect?

• Current tax expense may be equal to taxable profit multiplied by the enacted tax rate(s) applicable to the period(s) where the profit was earned.

• Deferred tax asset or liability is computed based on the substantially enacted tax rate that is applicable in the period where the deferred tax is expected to reverse.

• Income tax expense is equal to accounting profit multiplied by the substantially enacted future tax rate.

• Deferred tax expense (benefit) is equal to the net change in deferred tax asset and deferred tax liability during the year.

Which of the following situations would require interperiod income tax allocation procedures?

• A temporary difference exists because the tax basis of capital equipment is less than its reported amount in the financial statements.

• Proceeds from an insurance policy on capital equipment lost in a fire exceed the book value of the equipment.

• Last period's ending inventory was understated causing both net income and income tax expense to be understated.

• Nontaxable interest payments are received on municipal bonds.

The result of interperiod income tax allocation is that

• wide fluctuations in a company's tax liability payments are eliminated.

• tax expense shown in the income statement is equal to the deferred taxes shown on the balance sheet.

• tax liability shown in the balance sheet is equal to the deferred taxes shown on the previous year's balance sheet plus the income tax expense shown on the income statement.

• tax expense shown on the income statement is equal to income taxes payable for the current year plus or minus the change in the deferred tax asset or liability balances for the year.

Assuming no prior period adjustments, would the following allocations affect net income?

I. Interperiod Tax Allocation

II. Intraperiod Income Tax Allocation

• Yes; Yes

• Yes; No

• No; Yes

• No; No