Question 1

Net operating tax carry backs and carry forwards never result in a cash refund of prior taxes paid but may result in a reduction in taxes for subsequent years.

Accepted Answer

Net operating tax carry backs can result in a cash refund of prior taxes paid, while carry forwards may result in a reduction in taxes for subsequent years.

Question 2

Taxes are recovered at the rate at which it was originally paid.The tax rate in the year the loss occurs is not relevant.

Accepted Answer

Taxes are recovered at the rate at which it was originally paid, regardless of the tax rate in the year the loss occurs. This means that a loss incurred in a year with a higher tax rate can still be used to offset taxable income in future years with lower tax rates.

Question 3

Under income tax laws and regulations a corporation that sustains a net operating loss for the current year may elect to carry back and/or carry forward the loss for income tax purposes.

Accepted Answer

This statement is correct. A corporation may choose to carry back the net operating loss for up to two years or carry it forward for up to 20 years for income tax purposes, subject to certain limitations and restrictions.

Question 4

The terms "probable" and "more likely than not" refer to probabilities that are greater than or equal to 50%.

Accepted Answer

The answer of The terms "probable" and "more likely than...

Question 5

The use of a valuation allowance account is mandatory under IFRS.

Accepted Answer

Under IFRS, entities do not use a valuation allowance account for deferred tax assets. Instead, the carrying amount of deferred tax assets is directly reduced if it is not probable that sufficient taxable profit will be available.

Question 6

In general,deferred income tax assets due to tax loss carry forwards only to the extent that they are likely to be realized.

Accepted Answer

Deferred income tax assets are created when a company has overpaid taxes or incurred tax losses in previous years that can be used to offset future taxable income. However, these assets are only recognized on the balance sheet to the extent that the company believes they are likely to be realized in the future. This means that if the company does not expect to generate sufficient taxable income in the future to use its tax loss carry forwards, it may reduce the carrying value of its deferred tax assets accordingly. Therefore, the statement is true.

Question 7

The amount of any unused tax losses must be disclosed on the face of the income statement.

Accepted Answer

Disclosure of unused tax losses is not required on the face of the income statement, but is required in the notes to the financial statements.

Question 8

Under ASPE,deferred income tax assets due to carry forwards may or may not be recognized,depending whether the company uses the taxes payable method.

Accepted Answer

Under the taxes payable method, deferred income tax assets due to carry forwards may be recognized. Under the taxes paid method, they may not be recognized.

Question 9

In the year in which a tax loss is incurred,the tax loss must equal the net loss reported on the company's financial statements.

Accepted Answer

Tax losses and financial losses may not always match due to differences in accounting and tax rules.

Question 10

A tax loss represents the present and deferred benefit that the company will be able to realize from the tax loss through a reduction of income taxes paid to governments.

Accepted Answer

The answer of A tax loss represents the present and...

Question 11

If a corporation incurs a taxable loss,they are entitled to carry the loss back for three years or forward for twenty years.

Accepted Answer

This statement is true. A corporation can choose to carry the loss back to the three preceding tax years or carry it forward for up to 20 tax years to offset future taxable income.

Question 12

IFRS requires that any Valuation Allowance account balances (if used)be shown separately on the Statement of Financial Position.

Accepted Answer

IFRS does not use the concept of a Valuation Allowance for accounts receivable; instead, it requires the use of an allowance for doubtful accounts, which is directly deducted from the gross amount of accounts receivable, not shown separately on the Statement of Financial Position.

Question 13

The recovery of income tax expense is credited to income tax expense (recovery)account.

Accepted Answer

When there is a recovery of income tax expense, it means that the amount of income tax paid in the past is being refunded or credited back to the company. This is recorded as a credit in the income tax expense (recovery) account, which reduces the overall income tax expense for the period. Therefore, the statement "The recovery of income tax expense is credited to income tax expense (recovery) account" is true.

Question 14

Under IFRS,the income tax expense pertaining to continuing operations must be presented on the face of the income statement.

Accepted Answer

According to IFRS, income tax expense pertaining to continuing operations must be presented on the face of the income statement.

Question 15

Taxes are recovered at the tax rate in effect during the year of the loss.

Accepted Answer

Taxes are typically calculated based on the tax rates in effect for the year in which the income is earned, not the year of any loss.

Question 16

A tax benefit represents the present and deferred benefit that the company will be able to realize from the tax loss through a reduction of income taxes paid to governments.

Accepted Answer

A tax benefit does represent the present and deferred benefit that a company can realize by reducing income taxes paid to governments.

Question 17

Companies normally apply tax loss carry backs sequentially.

Accepted Answer

Companies typically apply tax loss carry backs sequentially, meaning they first apply the loss to the most recent tax year, then the preceding year, and so on until the loss is fully utilized or the carryback period is exhausted.

Question 18

A company carrying back a loss must use the earliest year first.

Accepted Answer

The answer of A company carrying back a loss must...

Question 19

Under current law,at the end of the year of loss or anytime during the next 15 years,a company may select to either carry back or carry forward-only the loss.

Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, for losses arising in tax years beginning after December 31, 2017, the carryback of net operating losses (NOLs) is generally eliminated, but NOLs can be carried forward indefinitely. The law regarding NOLs has been subject to change, including temporary provisions under the CARES Act that allowed for carrybacks for losses in certain years, but the general rule post-2017 is carryforward only, with no option to carry back except for specific exceptions.

Question 20

A company will show the same income tax expense/benefit regardless of whether or not a valuation allowance account is used.

Accepted Answer

The use of a valuation allowance can alter the reported income tax expense/benefit, as it adjusts the net deferred tax assets to the amount that is more likely than not to be realized.

Quiz 6: Revenue Recognition