Operating loss carryback
Will generate a refund of taxes paid in prior years
Valuation allowance
Reduces the net deferred tax asset and is allocated between current and noncurrent on a
Taxable income
Is the basis for computing the tax liability for taxes currently payable.
Deferred tax asset
Arises when future deductible amounts are created by temporary differences
Intraperiod tax allocation
Is a process of allocating income tax expense among income from continuing operations
Interperiod tax allocation
Is the process of allocating income taxes among two or more reporting periods by
Prior period adjustment
Would be either debited or credited to retained earnings net of any tax effect.
Deferred tax liability
Arises when future taxable amounts are created by temporary differences.
Operating loss carryforward
Will always create a deferred tax asset
Permanent Difference
Is usually a revenue or expense item that is excluded or not deductible in determining
Research and development costs reported in the income statement but elected to be capitalized and amortized over five years for tax purposes is:
a deferred tax asset
An operating loss carryforward
a deferred tax asset
Organization costs reported in the income statement but amortized and deducted over five years for tax purposes.
a deferred tax asset
Bad debt expense under the allowance method in the income statement in excess of the amount allowable under the direct write-off method for taxes.
a deferred tax asset
Prepaid expenses, tax deductible when paid.
a deferred tax liability
Current year contributions not currently deductible due to tax limitations but which can be carried forward to future tax years.
a deferred tax asset
No tax consequences
Permanent Difference
More likely than not" test.
Valuation Allowance
Same as related asset or liability.
Balance sheet classification
A "plug" for the net effect of the current tax liability and changes in deferred tax assets and liabilities.
Income tax expense
Produces future taxable amounts or future deductible amounts.
Temporary difference
GAAP regarding accounting for income taxes requires the following procedure
Computation of deferred tax assets and liabilities based on temporary differences
Which of the following causes a temporary difference between taxable and pretax accounting income?
MACRS used for depreciating equipment.
Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax liability?
Prepaid rent
A result of interperiod tax allocation is that
The income tax expense in the income statement is the sum of the income taxes payable
Which of the following creates a deferred tax liability?
Accelerated depreciation in the tax return.
Which of the following circumstances creates a future taxable amount?
Which of the following circumstances creates a future taxable amount?
Which of the following usually results in an increase in a deferred tax liability?
Prepaid operating expenses.
In the statement of cash flows, using the indirect method for determining cash flows from operating activities, a decrease in deferred tax liabilities is:
Subtracted from net income.
Of the following temporary differences, which one ordinarily creates a deferred tax asset?
accrued warranty expense
Using straight-line depreciation for financial reporting purposes and MACRS for tax purposes in the first year of an asset's life creates a:
Deferred tax liability
A deferred tax asset represents a:
Future income tax benefit
Of the following temporary differences, which one ordinarily creates a deferred tax asset?
A. Intangible drilling costs.
B. MACRS depreciation.
C. Rent received in advance.
D. Installment sales.
Rent received in advance
Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?
A. Tax depreciation in excess of book depreciation.
B. Revenue collected in advance
C. The installment sales method for tax purpose
Revenue collected in advance
Which of the following creates a deferred tax asset?
A. An unrealized loss from recording investments at fair value.
B. Prepaid expenses.
C. An unrealized gain from recording investments at fair value.
D. Accelerated depreciation in the tax return.
An unrealized loss from recording investments at fair value.
Which of the following circumstances creates a future deductible amount?
A. Earning of non-taxable interest on municipal bonds.
B. Sales of property (installment method for tax purposes).
C. Prepaid operating expenses.
D. Accrued warranty expenses.
Accrued warranty expenses.
Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes:
An increase in a deferred tax asset
A magazine publisher collects one year in advance for subscription revenue. In the year of providing the magazines to customers, the company would record
A decrease in a deferred tax asset.
In 2011, Magic Table Inc. decides to add a 36-month warranty on its new product sales. Warranty costs are tax deductible when claims are settled. In its financial statements for 2011, Magic Table Inc incurs:
An increase in a deferred tax asset.
Which of the following usually results in an increase in a deferred tax asset?
A. Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting.
B. Prepaid insurance.
C. Subscriptions delivered for which customers had p
None of the above is correct.
At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A footnote reveals that the entire $400,000 will be earned in the next year. In the absence of other temporary differences, in th
. Current deferred tax asset.
The valuation allowance account that is used in conjunction with deferred tax assets is a(n):
Contra asset
The valuation allowance account that is used in conjunction with deferred taxes relates
Only to deferred tax assets.
For classification purposes, a valuation allowance:
Is allocated proportionately between the current and noncurrent portions of the deferred tax asset.
Which of the following causes a permanent difference between taxable income and pretax accounting income?
Interest income on municipal bonds.
In reconciling net income to taxable income, interest earned on municipal bonds is
A permanent difference.
Which of the following causes a permanent difference between taxable income and pretax accounting income?
A. Advance collections of revenues.
B. MACRS depreciation method used for equipment.
C. The installment method used for sales of merchandise.
D. Inte
Interest earned on municipal securities
Which of the following would never require reporting deferred tax assets or deferred tax liabilities?
A. Depreciation on equipment.
B. Accrual of warranty expense.
C. Life insurance premiums.
D. Rent revenue received in advance.
Life insurance premiums.
When tax rates are changed subsequent to the creation of a deferred tax asset or liability, GAAP requires that:
All deferred tax accounts be adjusted to reflect the new tax rates.
The effect of a change in tax rates:
Is reflected in income from continuing operations
Under current tax law, generally a net operating loss may be carried back:
2 years.
Under current tax law a net operating loss may be carried forward up to
20 years
If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that
Sufficient taxable income will be generated in future years to realize the full tax benefit.
A net operating loss (NOL) carryforward cannot result in the balance sheet at the end of the NOL year showing:
A receivable under current assets for an income tax refund.
The tax effect of a net operating loss (NOL) carryback usually:
Results in a current receivable at the end of the NOL year.
Recognizing tax benefits in a loss year due to a net operating loss carryforward
creating a deferred tax asset.
According to GAAP for accounting for income taxes, when a company has a net operating loss carryforward:
A deferred tax asset is recorded along with any applicable valuation allowance.