16 a deferred tax asset arises when taxable income is

16) A Deferred Tax Asset arises when:
Taxable Income is less than Income Before Taxes due to a permanent difference.
Taxable Income is less than Income Before Taxes due to a temporary timing difference.
Taxable Income exceeds Income Before Taxes due to a temporary timing difference.
CORRECT
Taxable Income exceeds Income Before Taxes due to a permanent difference.
The correct answer is that Taxable Income exceeds Income Before Taxes due to a
temporary timing difference.
When a Deferred Tax Asset arises it means a company is recognizing Tax Expense now
on an amount of income that will be reflected in the financial records later.
17) You have just reviewed the financial statements of Penelope's Candy Store
(PCS). You have determined that PCS has a Profit Margin of 19%. How do you
explain this to owner Penelope Hassey?

19% of sales were generated by Net Income.
Profit Margin (Net Income/Sales) measures the ability of a company to make a profit
relative to revenue generated during a period. A Profit Margin of 19% tells us that for
every $100 in sales, $19 ended up in Net Income.
18)
Tom’s Grocery purchased 5 new cash registers for their new store and they paid $2,400
each for a total of $12,000 on August 1, 2013, the day they were delivered. The cash
registers are expected to have useful lives of 5 years and they are not expected to have
any salvage value. Tom's Grocery uses straight-line depreciation. The cash registers
were recorded as long-lived assets at the time of the purchase and now Tom's needs to
make an entry showing the expense related to these cash registers up to December 31,
2013.
The depreciable value of the cash registers is $12,000 and they have an estimated
useful life of 5 years (or 60 months), so the monthly depreciation would be $200 per
month ($12,000 / 60). To recognize the 5 months' worth of depreciation ($200 per month
* 5 months = $1,000) at 12/31/13, the company would record a debit to Depreciation (an
expense, part of owners' equity) for $1,000 and a credit to Accumulated Depreciation (a
contra-asset, part of assets) for $1,000.
19) In which stage would you typically expect to see large negative Financing Cash
Flows?
Startup
Profitable/Growing
Mature/Steady
CORRECT
Decline
Mature/Steady companies tend to have positive Operating Cash Flows, either positive or
negative Investment Cash Flows, and negative Financing Cash Flows.

20) The following cash transactions occurred during the period. Fill in the statement
of cash flows on the left following US GAAP. Use the direct method for calculating
cash flow from Operating Activities.
Look above to see the color-highlighted items to see which were not correctly classified.
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