CHAPTER 19 ACCOUNTING FOR INCOME TAXES

| November 9, 2018

S31. Which of the
following differences would result in future taxable amounts?
a.
Expenses
or losses that are tax deductible after they are recognized in financial
income.
b.
Revenues
or gains that are taxable before they are recognized in financial income.
c.
Revenues
or gains that are recognized in financial income but are never included in
taxable income.
d.
Expenses
or losses that are tax deductible before they are recognized in financial
income.

32.
Stuart
Corporation’s taxable income differed from its accounting income computed for
this past year. An item that would create a permanent difference in accounting
and taxable incomes for Stuart would be
a.
a
balance in the Unearned Rent account at year end.
b.
using
accelerated depreciation for tax purposes and straight-line depreciation for
book purposes.
c.
a
fine resulting from violations of OSHA regulations.
d.
making
installment sales during the year.

33.
An
example of a permanent difference is

a.
proceeds
from life insurance on officers.
b.
interest
expense on money borrowed to invest in municipal bonds.
c.
insurance
expense for a life insurance policy on officers.
d.
all
of these.

34.
Which
of the following will not result in a temporary difference?

a.
Product
warranty liabilities
b.
Advance
rental receipts
c.
Installment
sales
d.
All
of these will result in a temporary difference.

35.
A
company uses the equity method to account for an investment. This would result
in what type of difference and in what type of deferred income tax?

Type
of Difference

Deferred
Tax

a.

Permanent

Asset

b.

Permanent

Liability

c.

Temporary

Asset

d.

Temporary

Liability

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36.
A
company records an unrealized loss on short-term securities. This would result
in what type of difference and in what type of deferred income tax?

Type of Difference

Deferred
Tax

a.

Temporary

Liability

b.

Temporary

Asset

c.

Permanent

Liability

d.

Permanent

Asset

37.
Which
of the following temporary differences results in a deferred tax asset in the
year the

temporary
difference originates?
I.
Accrual
for product warranty liability.
II. Subscriptions received in advance.
III.
Prepaid insurance expense.
a.
I
and II only.
b.
II
only.
c.
III
only.
d.
I
and III only.

38.
Which
of the following is not considered a permanent difference?

a.
Interest
received on municipal bonds.
b.
Fines
resulting from violating the law.
c.
Premiums
paid for life insurance on a company’s CEO when the company is the beneficiary.

d.
Stock-based
compensation expense.

S39.
When a change in the tax rate is enacted into law, its effect on existing
deferred income tax accounts should be

a.
handled
retroactively in accordance with the guidance related to changes in accounting
principles.
b.
considered,
but it should only be recorded in the accounts if it reduces a deferred tax
liability or increases a deferred tax asset.

c.
reported
as an adjustment to tax expense in the period of change.
d.
applied
to all temporary or permanent differences that arise prior to the date of the
enactment of the tax rate change, but not subsequent to the date of the change.

40.
Tax
rates other than the current tax rate may be used to calculate the deferred
income tax amount on the balance sheet if

a.
it
is probable that a future tax rate change will occur.
b.
it
appears likely that a future tax rate will be greater than the current tax
rate.
c.
the
future tax rates have been enacted into law.
d.
it
appears likely that a future tax rate will be less than the current tax rate.

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