1.
A company would most likely choose the carryforward option for a net operating loss if the
company expected
Answer
higher tax rates in the future compared to the past.
lower tax rates in the future compared to the past.
lower earnings in the future compared to the past.
higher earnings in the future compared to the past.
2 points
Question 2
1.
A deferred tax liability arising from the use of an accelerated method of depreciation for tax
purposes and the straight-line method for financial reporting purposes would be classified on the
balance sheet as
Answer
a current liability.
a noncurrent liability.
a current liability for the portion of the temporary difference reversing within a year and a
noncurrent liability for the remainder.
an offset to the accumulated depreciation reported on the balance sheet.
2 points
Question 3
1.
All of the following can result in a temporary difference between pretax financial income and
taxable income except
Answer
payment of premiums for life insurance.
depreciation expense.
contingent liabilities.
product warranty costs.
2 points
Question 4
1.
Alpha had taxable income of $1,500 during 2014. Alpha used accelerated depreciation for tax
purposes ($2,000) and straight-line depreciation for financial reporting purposes ($800). On
December 30, 2014, Alpha collected the January 2015 rent of $600 on a lot it rents on a monthby-month basis to Zenith. Alpha’s pretax accounting income for 2014 would be
Answer
$900.
$2,100.
$3,300.
$3,700.
2 points
Question 5
1.
An example of a "deductible temporary difference" occurs when
Answer
the installment sales method is used for tax purposes, but the accrual method of recognizing
sales revenue is used for financial reporting purposes.
warranty expenses are recognized on the accrual basis for financial reporting purposes but
recognized as the warranty conditions are met for tax purposes.
accelerated depreciation is used for tax purposes but straight-line depreciation is used for
accounting purposes.
the completed-contract method of recognizing construction revenue is used for tax
purposes, but the percentage-of-completion method is used for financial reporting purposes.
2 points
Question 6
1.
An item that would create a permanent difference in pretax financial and taxable incomes would
be
Answer
using accelerated depreciation for tax purposes and straight-line depreciation for book
purposes.
purchasing equipment previously leased with an operating lease in prior years.
using the percentage-of-completion method on long-term construction contracts.
paying fines for violation of laws.
2 points
Question 7
1.
Which of the following creates a permanent difference between financial income and taxable
income?
Answer
Interest received on municipal bonds
Completed contract method of recognizing construction revenue
Unearned rent revenue
Accelerated cost recovery on plant and equipment
2 points
Question 8
1.
Which of the following creates a temporary difference between financial and taxable income?
Answer
Fines from violation of law
Interest on municipal bonds
Accelerated cost recovery on plant and equipment
Premiums paid for officer's life insurance (company is beneficiary)
2 points
Question 9
1.
The data shown below represent the complete taxable income history for Confederacy
Corporation. The tax rate was 35% throughout the entire period 2008 through 2015:
Year
2008
2009
2010
2011
2012
2013
2014
2015
Taxable
Income
$ 15,000
$ 5,000
$ 30,000
$ 10,000
$(50,000)
$(10,000)
$ 25,000
$ 25,000
If the company always chooses the carryback, carryforward option, what is the tax liability for
2014?
Answer
$1,750
$8,750
$5,250
$0
2 points
Question 10
1.
Which of the following represents a permanent difference?
Answer
Point-of-sale revenue recognition for financial reporting purposes, installment method for
tax purposes
Goodwill amortization deducted on the tax return but not amortized for financial reporting
purposes
Straight-line depreciation for financial reporting purposes, accelerated depreciation for tax
purposes
Carryback, carryforward option for taxes, no such option for financial reporting purposes
2 points
Question 11
1.
Which of the following is the most likely item to result in a deferred tax asset?
Answer
Using accelerated depreciation for tax purposes but straight-line depreciation for accounting
purposes
Using the completed-contract method of recognizing construction revenue tax purposes, but
using percentage-of-completion method for financial reporting purposes
Prepaid expenses
Unearned revenues
2 points
Question 12
1.
Which of the following items results in a temporary difference deductible amount for a given
year?
Answer
Premiums on officer's life insurance (company is beneficiary)
Premiums on officer's life insurance (officer is beneficiary)
Vacation pay accrual
Accelerated depreciation for tax purposes; straight-line for financial reporting purposes
2 points
Question 13
1.
Amengual Corporation began operations in 2011 and had operating losses of $400,000 in 2012
and $300,000 in 2013. For the year ended December 31, 2014, Amengual had a pretax financial
income of $600,000. For 2012 and 2013, assume an enacted tax rate of 30 percent, and for 2014
a 35 percent tax rate. There were no temporary differences in any of the years. In Amengual's
2014 income statement, how much should be reported as income tax expense?
Answer
$0
$30,000
$180,000
$210,000
2 points
Question 14
1.
In 2014, Ryan Corporation reported $85,000 net income before income taxes. The income tax
rate for 2014 was 30 percent. Ryan had an unused $65,000 net operating loss carryforward
arising in 2013 when the tax rate was 35 percent. The income tax expense Ryan would report for
2014 would be
Answer
$7,000.
$6,000.
$24,600.
$32,000.
2 points
Question 15
1.
The purpose of an interperiod income tax allocation is to
Answer
allow reporting entities to fully utilize tax losses carried forward from a previous year.
allow reporting entities whose tax liabilities vary significantly from year to year to smooth
payments to taxing agencies.
recognize an asset or liability for the tax consequences of temporary differences that exist at
the balance sheet date.
amortize the deferred tax liability shown on the balance sheet.