Question 1

Which of the following is/are not true regarding U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes?

Accepted Answer

Income tax expense does not always equal income taxes currently payable due to the presence of deferred tax assets and liabilities.

Question 2

What equals the income tax expense divided by financial reporting income before income taxes?

Accepted Answer

The income tax expense divided by financial reporting income before income taxes is known as the effective tax rate. This measures the actual tax burden on a company's income after taking into account all deductions, credits, and exemptions.

Question 3

Downy Airlines discloses the funded status of pension plans and the health and life insurance plans for two recent years.Both the pension plan and other benefit plans are underfunded.The amounts that Downy includes in _____, _____, represent unamortized prior service costs and net actuarial losses.

Accepted Answer

Unamortized prior service costs and net actuarial losses are typically recorded in the Accumulated Other Comprehensive Income account, which is a component of shareholders' equity.

Question 4

Firms compute income tax payable for a period using _____ as the base.

Accepted Answer

Firms compute income tax payable for a period using taxable income as the base. This is the income after deductions and exemptions allowed by tax laws. It is the income that is subject to taxation by the relevant tax authority.

Question 5

Permanent differences between pretax book income and taxable income arises from

Accepted Answer

Permanent differences arise when items are included in book income but are not taxable, or when items are taxable but not included in book income. Tax-exempt interest revenue is one such item that is included in book income but is not taxable, while certain fines are taxable but not included in book income. Therefore, the best choice is E. Depreciation on long-lived assets and bad debt expense can create temporary differences but not permanent differences.

Question 6

The temporary difference associated with accelerated depreciation for tax purposes and straight-line depreciation for financial reporting purposes means that a firm will pay _____ income taxes in the early years of the asset's life, but this temporary difference will reverse over the entire asset life, resulting in _____ taxes in later years.

Accepted Answer

Accelerated depreciation results in lower taxable income and thus lower taxes in the early years, but this difference reverses, leading to higher taxes in later years.

Question 7

Which of the following is/are true regarding the accounting for defined contribution plans?

Accepted Answer

All of the statements are true regarding the accounting for defined contribution plans.

Question 8

Using U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes, the accountant computes income tax expense using

Accepted Answer

The answer of Using U.S.GAAP and IFRS requirements for income...

Question 9

Temporary differences between pretax book income and taxable income arises from

Accepted Answer

Temporary differences between pretax book income and taxable income can arise from many factors, but depreciation on long-lived assets and bad debt expense are two common ones. For example, book depreciation may be different from tax depreciation due to differences in useful lives or methods. Similarly, bad debt expense may be recognized for book purposes before it is allowed for tax purposes. Other examples of temporary differences include tax-exempt interest revenue, certain fines, and net operating loss carryforwards.

Question 10

The basis for both U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes focuses on which of the following financial reporting objectives?

Accepted Answer

Both U.S. GAAP and IFRS require recognizing current income tax liabilities and assets and deferred tax liabilities and assets for the future income tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax basis. Therefore, choice C is the correct answer. Choices A, B, D, and E are incorrect as they do not fully address all of the income tax accounting requirements under U.S. GAAP and IFRS.

Question 11

Using U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes, permanent differences

Accepted Answer

Permanent differences are differences between taxable income and accounting income that arise because certain items are recognized in one system (either for tax purposes or in financial statements) but not in the other, and these differences do not reverse over time. They do not affect the calculation of income tax expense in the financial statements because they do not result in future taxable or deductible amounts. Therefore, they also do not impact cash outflows for income taxes directly through the income tax expense calculation.

Question 12

Some employers specify the benefit that employees will receive during retirement.The employer must contribute sufficient amounts to the pension plan so that those contributions plus earnings from investments made with those contributions will be sufficient to pay the specified benefit.Such plans are referred to as

Accepted Answer

The described pension plan is a defined benefit plan, as the employer is specifying the benefit that employees will receive during retirement.

Question 13

Downy Airlines discloses the funded status of pension plans and the health and life insurance plans for two recent years.Both the pension plan and other benefit plans are underfunded.The underfunded amounts for these plans appear in

Accepted Answer

The underfunded amounts for pension plans and other benefit plans are considered as current and noncurrent liabilities on the balance sheet, because these are obligations that are yet to be paid off by the company.

Question 14

Which of the following is/are true regarding U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes?

Accepted Answer

All of the choices are true regarding U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes. A permanent difference never affects income tax expense, a temporary difference that implies a future tax deduction gives rise to a deferred tax asset, a temporary difference that implies a future increase in income tax payable gives rise to a deferred tax liability, and the accountant computes income tax expense using pretax amounts for financial reporting.

Question 15

Some employers promise to contribute a certain amount to the pension plan each period for each employee, usually based on an employee's salary, without specifying the benefits the employee will receive during retirement.The amounts employees eventually receive depend on the investment performance of the pension plan.Such plans are referred to as

Accepted Answer

The description matches that of a defined contribution pension plan, where the employer contributes a set amount but the eventual benefits depend on the performance of investments in the plan. Option A, defined benefit pension plans, involve a specified benefit amount for employees regardless of investment performance. Options C, D, and E refer to different types of plans focused on deferred compensation, education savings, and individual retirement savings, respectively, and are not applicable to the given scenario.

Question 16

U.S.GAAP and IFRS require complex procedures in accounting for income taxes.Complexities in the accounting for income taxes include(s)

Accepted Answer

All of the given options are complexities in the accounting for income taxes as per both U.S.GAAP and IFRS. The income tax rates can change over time, leading to changes in deferred tax liabilities. Temporary differences can create both deferred tax assets and deferred tax liabilities. Finally, firms can only recognize deferred tax assets to the extent that they expect to have enough taxable income in the future to generate tax savings.

Question 17

Both the regulatory treatment and the tax treatment of employer contributions

Accepted Answer

Both the regulatory and tax treatments are jurisdiction-specific, differ between health plans and pensions, and often create stronger incentives for pension contributions.

Question 18

Taxable income excludes _____ and uses the accounting methods that the _____ either require or permit firms to use for tax reporting.

Accepted Answer

Permanent differences are items that are either included in taxable income or financial income but never both, thus they are excluded from taxable income calculations. The income tax law and regulations are what dictate the accounting methods firms must use for tax reporting, not U.S. GAAP or IFRS, which are used for financial reporting.

Question 19

Income tax expense affects assessments of profitability as much as any other expense.A common ratio for analyzing the effect of income taxes on profitability is the _____ rate, equal to income tax expense divided by financial reporting income before income taxes:

Accepted Answer

The ratio described is known as the effective tax rate, which measures the proportion of pre-tax income that is paid in taxes. This ratio is important in understanding the impact of income taxes on profitability. The other choices are not the best fit for this question - marginal tax rate refers to the tax rate on an additional dollar of income, tax burden refers to the total tax paid as a proportion of total income, statutory tax rate refers to the tax rate set by law, and average tax rate refers to the total tax paid divided by taxable income.

Question 20

Which of the following is not true regarding the accounting for defined contribution plans?

Accepted Answer

Annual deviations from the long-term expected rate of return should not flow through to net income as they occur. Instead, they are recognized as a component of other comprehensive income.

Quiz 12: Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes