Question 1

How is the earnings conservatism ratio calculated? Discuss the rationale behind the calculation of a company's earnings conservatism ratio.

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Question 2

Describe the accounting treatment for net operating losses.

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Question 3

Which of the following will result in a deferred tax asset?

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Reporting an expected loss on a lawsuit in the income statement, which cannot be reported on the tax return until it is actually incurred, will result in a deferred tax asset because the company will eventually be able to deduct the loss on their tax return, creating a tax benefit in the future. Options A, B, and C do not create temporary differences between financial reporting and tax reporting, and therefore would not result in a deferred tax asset.

Question 4

What is the difference between a future taxable amount and a future deductible amount?

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Question 5

What are the objectives of accounting for income taxes?

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Question 6

A company that has both short-term deferred tax assets of $22,000, long-term deferred tax liabilities of $36,000, short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report

Accepted Answer

The company should report a non-current liability for $5,000, as this is the difference between the long-term deferred tax liabilities and the long-term deferred tax assets. The short-term deferred tax assets and liabilities cancel each other out and do not need to be separately reported.

Question 7

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

Accepted Answer

According to Accounting Standards Codification (ASC) 740, a company should recognize a tax benefit related to uncertain tax positions only if it is more likely than not (i.e., a probability of more than 50%) that the position will be sustained on audit based on its technical merits. This recognition should be based on management's assessment of the relevant facts, circumstances, and applicable tax law. Option A and B are incorrect because they do not accurately reflect the requirement under ASC 740.

Question 8

Distinguish between an originating temporary difference and a reversing temporary difference.

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Question 9

A net operating loss:

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...

Question 10

Describe the three types of permanent differences. `

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Question 11

Define the following types of differences between financial accounting income and taxable income:
a. Temporary
b. Permanent

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Question 12

Which of the following will result in a deferred tax liability?

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Question 13

Discuss the arguments for and against discounting deferred taxes.

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Question 14

When is it appropriate to record a valuation account for a deferred tax asset?

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Question 15

Which of the following causes a permanent difference between taxable income and financial accounting income?

Accepted Answer

Permanent differences between taxable income and financial accounting income are caused by items that are either included only in taxable income or only in financial accounting income, but not both. A life insurance premium paid by the corporation on a policy where the corporation is the beneficiary is not deductible for tax purposes but is an expense for financial accounting purposes, creating a permanent difference. Choices A, B, and D typically create temporary differences as they eventually reconcile over time.

Question 16

A deferred tax liability represents the:

Accepted Answer

A deferred tax liability represents an increase in taxes payable in future years as a result of taxable temporary differences. Temporary differences arise when there is a difference between the tax basis of an asset or liability and its reported amount on the financial statements. If the tax basis is greater than the reported amount, then the company will pay more taxes in the future, resulting in a deferred tax liability.

Question 17

Discuss the arguments for and against interperiod tax allocation.

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Question 18

An increase in the deferred income tax asset valuation allowance

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An increase in the deferred income tax asset valuation allowance indicates that it is less likely that the company will be able to utilize its deferred tax assets in the future to offset its taxable income. As a result, the company must increase its income tax expense to reflect this change in circumstances.

Question 19

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle?

Accepted Answer

The asset/liability method of interperiod tax allocation best represents an example of the matching principle. This method recognizes deferred tax liabilities or assets based on temporary differences between book and tax values of assets and liabilities. This ensures that the tax expense or benefit is allocated to the period in which the related revenue or expense is recognized, consistent with the matching principle.

Question 20

Discuss the arguments for comprehensive vs. partial allocation of interperiod taxes.

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Quiz 12: Accounting for Income Taxes