Accounting for Income Tax

Accounting for Income Tax - Accounting for Income...

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Unformatted text preview: Accounting for Income Tax-problems by Alfredo Garcia February 22, 2005 [ Send a comment to Alfredo Garcia | Print View ] MULTIPLE CHOICE QUESTIONS a1.Which of the following creates a permanent difference between financial income and taxable income? a.Interest received on municipal bonds b.Completed contract method of recognizing construction revenue c.Unearned rent revenue d.Accelerated cost recovery on plant and equipment b2.Which of the following creates a temporary difference between financial and taxable income? a.Interest on municipal bonds b.Accelerated cost recovery on plant and equipment c.Fines from violation of law d.Premiums paid for officer's life insurance (company is beneficiary) c3.The purpose of an interperiod income tax allocation is to a.allow reporting entities to fully utilize tax losses carried forward from a previous year. b.allow reporting entities whose tax liabilities vary significantly from year to year to smooth payments to taxing agencies. c.recognize an asset or liability for the tax consequences of temporary differences that exist at the balance sheet date. d.amortize the deferred tax liability shown on the balance sheet. d4.The result of interperiod income tax allocation is that a.wide fluctuations in a company's tax liability payments are eliminated. b.tax expense shown in the income statement is equal to the deferred taxes shown on the balance sheet. c.tax liability shown in the balance sheet is equal to the deferred taxes shown on the previous year's balance sheet plus the income tax expense shown on the income statement. d.tax expense shown on the income statement is equal to income taxes payable for the current year plus or minus the change in the deferred tax asset or liability balances for the year. a5.Which of the following temporary differences ordinarily creates a deferred tax asset? a.Accrued warranty costs b.Depreciation c.Installment sales d.Amortization of goodwill c6.An example of a "deductible temporary difference" occurs when a. the installment sales method is used for tax purposes, but the accrual method of recognizing sales revenue is used for financial reporting purposes. b. accelerated depreciation is used for tax purposes but straight line depreciation is used for accounting purposes. c. warranty expenses are recognized on the accrual basis for financial reporting purposes but recognized as the warranty conditions are met for tax purposes. d. the completed-contract method of recognizing construction revenue is used for tax purposes, but the percentage-of-completion method is used for financial reporting purposes. a7.Which of the following situations would require interperiod income tax allocation procedures?...
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Accounting for Income Tax - Accounting for Income...

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