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Exam 19: Accounting for Income Taxes

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Question 21

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The interperiod tax allocation method that is balance-sheet oriented, reports deferred taxes based on the future enacted tax rates, and more closely meets the conceptual definitions of assets and liabilities established by the FASB is the

A) deferred method
B) net-of-tax method
C) partial income tax allocation approach
D) asset/liability method

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Question 22

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Which of the following statements regarding current and deferred income taxes is not correct?

A) The amount of income tax expense must be allocated to various components of comprehensive income.
B) The income tax obligation is determined by applying the historical tax rates to the taxable income for the year.
C) The valuation allowance account is subtracted from the deferred tax asset account on the balance sheet.
D) Rent received in advance that will be earned within the next 12 months results in the creation of a current deferred tax asset.

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Question 23

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Revenue from installment sales is recognized in the period received for tax purposes and recognized in the period earned for accounting purposes.If these periods are different, this is an example of a

Which one of the following requires interperiod tax allocation?

Intraperiod tax allocation would be appropriate for

Differences between pretax financial accounting and taxable income that are expected to reverse in one or more future accounting periods are called

During its first year of operations ending on December 31, 2010, the Laredo Company reported pretax accounting income of $600, 000.The only difference between taxable income and accounting income was $80, 000 of accrued warranty costs.These warranty costs are expected to be paid as follows: $\begin{array}{rrrr}&&\text { Enacted }\\\text { Year }&\text { Amount } & \text { Tax Rate }\\2010 & \$ 0 & 30 \% \\2011 & 60,000 & 35 \% \\2012 & 20,000 & 40 \%\end{array}$ Assuming an income tax rate of 30% in 2010, Laredo should report income tax expense on its 2010 income statement in the amount of

Harlingen Company reported the following operating results during its first three years of operations: 2010 Pretax operating loss $\quad$$\$ 30,000$ 2011 Pretax operating loss $\quad$$\$ 200,000$ 2012 Pretax operating income $\$ 300,000$ No permanent or temporary differences occurred during these fiscal periods.Assuming an income tax rate of 30%, Harlingen should report a current income tax liability as of December 31, 2012, in the amount of

Each of the following can result in a temporary difference between pretax financial income and taxable income except

Current GAAP requires which of the following tax allocation approaches and methods? $\begin{array}{lll}& \text { Approach}& \text { Method}\\\text { I. } & \text { partial } & \text { asset/liability } \\\text { II. } & \text { comprehensive } & \text { deferred } \\\text { III. } & \text { comprehensive } & \text { asset/liability } \\\text { IV. } & \text { partial } & \text { deferred }\end{array}$

Deferred tax liabilities and deferred tax assets must be reported on the balance sheet. Required: Explain the process of classifying and reporting deferred tax liabilities and deferred tax assets.

In accounting for income taxes, percentage depletion in excess of cost depletion is an example of

The Brownwood Company reports the following for both pretax financial and taxable income: Brownwood uses the carryback provision for net operating losses when possible.Congress has enacted a tax rate for 2014 and future years of 40%.The entry on December 31, 2013, to record income tax expense would include a

Temporary differences arise when revenues or gains are included in pretax financial income $\begin{array}{lll} & \text {Prior to the Time}& \text {After the Time}\\& \text {They Are Included in}& \text {They Are Included}\\& \text {Taxable Income}&\text {in Taxable Income}\\\text { I. } & \text { Yes } & \text { Yes } \\\text { II. } & \text { Yes } & \text { No } \\\text { III. } & \text { No } & \text { Yes } \\\text { IV } & \text { No } & \text { No }\end{array}$

In applying intraperiod income tax allocation to discontinued operations, extraordinary items, cumulative effects of changes in accounting principles, and prior period adjustments, what tax rate should be used?

For each item listed below, indicate whether it involves a: Required: Match each item to its descriptive phrase by placing the appropriate letter in the space provided.

Which of the following transactions would typically result in the creation of a deferred tax liability?

Income taxes for financial accounting purposes are apportioned to each of the following items except

Temporary differences arise when expenses or losses are deducted to compute taxable income $\begin{array}{lll}& \text { Prior to the Time They}& \text { After the Time They Are}\\& \text { Are Deducted to Compute}& \text {Deducted to Compute}\\& \text {Pretax Financial Income}& \text {Pretax Fingncial Income}\\\text { I. } & \text { Yes } & \text { Yes } \\\text { II. } & \text { No } & \text { Yes } \\\text { III. } & \text { Yes } & \text { No } \\\text { IV } & \text { No } & \text { No }\end{array}$

Match each item to its descriptive phrase by placing the appropriate letter in the space provided.