Question 1

Which of the following statements is correct?

Select one:
A. Inter-period income tax allocation can change profit or loss for a period from what it
would be with no inter-period income tax allocation.
B. The assets and liability method requires that deferred income taxes payable be computed
first, then income tax expense, and finally the change in the deferred income tax accounts.
C. Income tax expense equals the product of the current tax and pretax income.
D. Income tax expense generally equals the product of the future enacted tax rate and pretax
income.

Question 2
BTD ha a P1,200 temporary differences for deferred gross margin on installment sales at the end
of 2013. This temporary difference will reverse equally during 2014, 2015, and 2016. The
enacted corporate income tax rate is 25% and Congress is discussing an increase in the corporate
income tax rates for 2015 and 2016 to 35%. The deferred tax liability related to this temporary
difference at the end of 2013 would be:

300
Answer:

Question 3

RCY had a P1,200 temporary difference for deferred gross margin on installment sales at the end
of 2014. This temporary difference will reverse equally during 2015, 2016, 2017. The enacted
corporate income tax rate is 48% and Congress is discussing a reduction in the corporate income
tax rates for 2016 and 2017 to 38%. The deferred tax liability related to this temporary difference
at the end of 2014 would be:

576
Answer:

Question 4
Which of the following statements is correct?

Select one:
A. Inter-period income tax allocation is the allocation of income taxes among accounting
periods to determine income tax expense and the change in deferred income tax periods for each
period.
B. Current tax expenses equals the product of the current tax rate and pretax income adjusted
for permanent differences.
C. Income tax expense generally equals the product of the future enacted tax rate and pretax
income adjusted for permanent differences.
 D. Future estimated tax rate changes are recognized under the asset and liability method.

Question 5
Which of the following is the best description of IAS approach to inter-period tax allocation?

Select one:
A. The asset-liability method
B. An application of the matching concept
C. The enacted method
D. Partial allocation

Question 6
Which of the following transactions does not cause a temporary income tax difference?

Select one:
A. Expenses or losses that are deducted in determining taxable income one or more periods
after they are deducted in determining pretax accounting income.
B. Revenues or gains that are included n pretax accounting income but are never included in
taxable income.
C. Expenses or losses that are deducted in determining taxable income before they are
deducted in determining pretax accounting income.
D. Revenues or gains that are included in taxable income one or more periods after they are
included in pretax accounting income.

Question 7
Which of the following does not help explain why income tax expense is different from the
product of pretax income and the current tax rate?

Select one:
A. permanent differences
B. the fact that future and current tax rates are different.
C. temporary differences
D. a change in the valuation allowance account for the deferred tax asset.

Question 8
Which of the following statements is true?

Select one:
A. Future taxable amounts include revenues and gains that are included in the tax return
before they are recognized for accounting purposes.
 B. Future deductible amounts include expenses and losses that are included in the tax return
before they are recognized for accounting purposes.
C. Temporary differences occur because accounting standards and income tax laws differ as
to when they recognized assets, liabilities, owners‟ equity, revenues, gains, expenses and losses.
D. The term future taxable amount relates to a deferred tax asset.

Question 9
Which of the following statements is false?

Select one:
A. Future enacted tax rate changes are recognized under the assets and liability method.
B. Per PAS 12, income tax expense is the sum of income tax payable and the changes in
deferred income tax and any tax valuation allowance accounts.
C. Temporary differences very seldom reverse (turnaround) in one or more future reporting
periods.
D. Income tax payable (or the income tax liability for the period) should be computed based
upon information on the income tax return.

Question 10
A future deductible amount is exemplified by all of the following except
Select one:
A. gain that is included in the tax return before it is included in pretax accounting income
B. revenue that is included in the tax return before it is included in pretax accounting income
C. expense that is included in the tax return after it is included in pretax accounting income
D. expense that is included in the tax return before it is included in pretax accounting income
E. loss that is included in the tax return after it is included in pretax accounting income

Question 11
Which of the following is not a source of support for the realization of a deferred tax asset?

Select one:
A. future taxable temporary differences
B. future taxable income.
C. future deductible temporary differences
D. past taxable income within the carryback period.

Question 12
Which of the following statement is incorrect?
Select one:
A. Discounting of deferred tax assets and liabilities is required when the reversal period is
more than one year in the future, in order to fairly state the balance sheet item.
B. Under income tax laws and regulations, a corporation that sustains a net operating loss for
the current year may elect to carry forward the loss for income tax purposes.
C. Net operating tax carry forwards could result in a cash refund of prior taxes paid in
addition to a reduction in taxes for subsequent years.
D. IAS 12 on income taxes requires the use of a valuation allowance account for deferred tax
assets in certain cases.

Question 13

Which of the following is an example of a temporary difference which would result in a deferred
tax liability?

Select one:
A. Rent revenue collected in advance when included in taxable income before it is included
in pretax accounting income.
B. Use of straight-line depreciation for accounting purposes and an accelerated rate for
income tax purposes.
C. Use of a shorter depreciation period for accounting purposes than is used for income tax
purposes
D. Investment losses recognized earlier for accounting purposes than for tax purposes.

Question 14
An example of a “future deductible amount” occurs when
Select one:
A. product warranty costs recognized for tax purposes as the warranty conditions are met but
recognized for accounting purposes earlier on the accrual basis
B. expense are recognized more quickly for taxes than for the books.
C. a gain on installment sales is recognized for tax purposes as the receivable is collected,
but was earlier recognized for accounting purposes when the sale was made.
D. accelerated depreciation is used for tax purposes but straight-line depreciation is used for
accounting purposes.

Question 15
Which of the following is an example of a temporary difference which would not result in a
deferred tax asset?

Select one:
 A. Unrealized loss on short-term investment is recognized for accounting purposes during
the holding period while the actual loss on date of disposal is used for tax purposes.
B. Use of sales method of revenue recognition for accounting purposes and installment
method of revenue recognition for tax purposes.

C. Estimated loss on disposal of a segment of a business recognized for accounting purposes

but reported on the income tax return later in the basis of the actual loss.
D. Allowance method for doubtful accounts is used for accounting purposes while direct
write-off is required for tax purposes.

Question 16

Which of the following is an example of a temporary difference which would not result in
deferred tax liability?

Select one:
A. Use of a longer depreciation period for accounting purposes than is used for income tax
purposes.
B. Rent received in advanced in the year of receipt.
C. Short-term investments for which an unrealized gain is recognized for accounting
purposes during the holding period while the actual gain on date of disposal is used for tax
purposes.
D. Income on long-term construction contracts when percentage of completion is used for
accounting purposes and completed contacts is used for tax purposes.

Question 17

FAC had a P5,400 temporary tax difference resulting from using an accelerated depreciation
method for tax purposes at the end of 2014. This temporary difference will reverse equally
during 2015, 2016,and 2017. The currently enacted tax rates are: 2014 – 25%; 2015 – 30%; 2016
– 26%; and 2017 – 25%. The related deferred tax liability at the end of 2014 would be:

1458
Answer:

Question 18
ETC‟s taxable income was P900 during 2018. ETC had product warranty costs of P400
recognizable for tax purposes and P360 recognizable for financial accounting purposes. ETC had
no other temporary differences. ETC‟s pretax accounting income for 2018 would be:
 940
Answer:

Question 19
Question text
JTC provided the following data related to income tax allocation :

The deferred tax account showed a zero balance at the start of 2018. There was only one
temporary difference, a revenue, which was taxable in 2018, but was recorded for accounting
purposes in 2019. There are no carrybacks or carryforwards. The journal entry to record the
income tax consequences for 2018 would include a:

Select one:
A. Debit of P136 to JTC‟s deferred tax liability account.
B. Debit of P136 to JTC‟s deferred tax asset account.
C. Credit of P136 to JTC‟s deferred tax asset account.
D. Credit of P136 to JTC‟s deferred tax liability account.

Question 20

Which of the following statements is false?

Select one:
A. Timing differences relate to items that will be recognized on both the statement of profit
or loss and the tax return, but in different reporting periods.
B. The balance in a deferred tax asset account is reported each period as a contra account
under liabilities on the statement of financial position.
C. The total deferred tax asset and the total deferred liability existing at year-end are
determined based on temporary differences at that time.
D. A deferred income tax liability or asset is the result of multiplying a future temporary
difference by the enacted future income tax rate.

Question 21
At most, how many deferred tax accounts will a firm report in its statement of financial
position?

Select one:
 A. 2
B. 1
C. 3
D. 4

Question 22

A firm has P30,000 in rent collected in advance listed in its statement of financial position at the
beginning of the year. During the year, P100,000 of rent is received from its tenants, and
P60,000 of rent is recognized as revenue in the current year income statement. The tax rate is
40% and rent is the only source of temporary differences. At the end of the year, the firm will

Select one:
A. decrease its deferred tax asset P24,000
B. decrease its deferred tax asset P16,000
C. decrease its deferred tax liability P16,000
D. increase its deferred tax asset P16,000
E. increase its deferred tax asset P40,000

Question 23
Deferred income tax amounts initially are computed on the basis of tax rates in effect when the
temporary differences occur as long as future enacted tax rates are not different. If tax rates
change before the temporary differences reverse:

Select one:
A. income of the period in which the differences were first recognized is changed
retroactively.
B. the deferred tax balance are adjusted to reflect the new rates.
C. an extraordinary gain or loss is recognized for the change caused by the newly enacted
tax law rates.
D. because deferred taxes is an estimate, no adjustment of the deferred tax balance is usually
period.

Question 24
The term “future taxable amount” includes:
Select one:
A. gains that are included in the tax return AFTER they are recognized for accounting
purposes.
 B. revenues that are included in the tax return BEFORE they are recognized for accounting
purposes.
C. warranty deductions for accounting purposes.
D. losses that are included in the tax return AFTER they are recognized for accounting
purposes.

Question 25

Which of the following statements is correct?

Select one:
A. If inter-period income tax allocation is performed correctly there is no need for intra-
period income tax allocation.
B. IAS 12 requires the use of the deferral method for recording and reporting investment tax
credits in order to be in conformity with the matching principle.
C. Deferred income tax amounts are reported on the statement of profit or loss and retained
earnings.
D. If the enacted tax rate is changed for the current and future years, the earnings effect of
the change in the beginning balances of the deferred tax asset is recognized in the current year.

Question 26
Choose the incorrect statement.

Select one:
A. Per IAS 12 on Income Taxes, the change in the deferred income tax liability or asset plus
the income taxes payable as shown on the tax return is the amount a company should show on its
statement of profit or loss as income tax expense.
B. Under IAS 12 on Income Taxes, income tax is recognized in the period in which an item
is recognized in the tax return, rather than the period in which it is recognized on the statement of
profit or loss.
C. A deferred tax liability (a credit) results from applying the future enacted tax rate to a
future taxable temporary difference.
D. The net change during the accounting year in the deferred income tax liability or asset
account plus the income tax liability for the year equals income tax expense.

Question 27
TVD had taxable income of P1,500 during 2017. TVD used accelerated depreciation for tax
purposes (P2,000) and straight-line depreciation for financial accounting purposes (P800). On
December 30, 2017 TVD collected January 2018‟s P600 rent on a lot it rents on a month-by-
month basis to BTD. TVD‟s pretax accounting income for 2017 would be?
2100
Answer:
Question 28
In computing the change in deferred tax accounts, which tax rates are used?
Select one:
A. enacted future tax rates
B. current tax rate
C. past years‟ tax rates
D. estimated future tax rates

Question 29
Permanent differences differ from temporary differences in that
Select one:
A. A permanent difference cannot change its status once designated, but temporary
difference may be reclassified in a later period.
B. Permanent differences occur more infrequently than temporary differences.
C. Permanent differences do not reverse themselves in subsequent periods.
D. Permanent differences both unusual and infrequent.

Question 30
Which of the following is an example of temporary difference that could result to a deferred tax
asset?

Select one:
A. Gross margin on installment sales is recognized for accounting purposes before it is
included in taxable income in the income tax return.
B. Use of straight-line depreciation for accounting purposes and an accelerated rate for
income tax purposes.
C. Gain on disposal of an asset when included in taxable income before it is included in
pretax accounting income.
D. Prepayments of expenses in year of payment; recognition of expense for accounting
purposes in a later year.

Question 31
The following data related to a firm in Year 1, its first year (amounts in „000s). Year 2 amounts
are based on transactions occurring in Year 1 and have not occurred as of 12/31/Year 1.
Assume that any deferred tax asset implied by the above is realizable. What is income tax
expense for year 1?

29
Answer:

Question 32
A future taxable amount is exemplified by
Select one:
A. gain that is included in the tax return before It is included in pretax accounting income.
B. expense that is included in the tax return after it is included in pretax accounting income.
C. expense that is included in the tax return before it is included in pretax accounting
income.
D. revenue that is included in the tax return before it is included in pretax accounting
income.

Question 33

17000
Answer:
Question 34
Choose the incorrect statement.
Select one:
A. IAS 12 on Income Taxes places constraints on the amount that can be recorded as a
deferred tax asset under certain conditions.
B. IAS 12 on Income Taxes places constraints on the amount that be recorded as a deferred
tax liability under certain conditions.
C. If the enacted tax rate is changed for the current and future years, the earnings effect of
the change in the beginning balances of the deferred tax asset is recognized in the current year.

D. The balance in a deferred tax liability account is reported each period under liabilities on
the statement of financial position.

Question 35
Which of the following could never be subject to interperiod tax allocation
Select one:
A. Estimated warranty expense.
B. Depreciation expense on operational assets.
C. Rent revenue
D. Interest revenue on government bonds.
Question 36

Interperiod tax allocation accounts for

Select one:
A. temporary differences.
B. tax effects of specific income statement items in the same period.
C. all differences between tax regulations and PFRS.
D. permanent differences.

.
Question 37
JNE had pretax accounting income of P1,400 during 2019. JNE used accelerated depreciation for
tax purposes (P1,000) and straight-line depreciation for financial accounting purposes (P200).
During 2019 JNE accrued warranty expenses of P1,700 and paid cash to honor warranties of
P500. JNE‟s taxable income for 2019 would be:
1800
Answer:
Question 38

Which of the following statements is true?

Select one:
A. Income tax is major expense and a long-term liability for most corporations.
B. The difference between accounting income and taxable income is caused by temporary an
permanent differences.
C. Since PFRS and income tax requirements are usually the same, accounting income and
taxable income usually are the same.
D. The “asset and liability” method requires that deferred income taxes payable be computed
first before determining income tax payable and income ax expenses and then the resulting
difference is credited to deferred income taxes payable.

Question 39

Casper Corporation reports pretax accounting income of P500,000. Its taxable income for the
year, however, is P300,000. The difference its due to the use of different depreciation methods.
Given that the applicable tax rate is 34%, Casper‟s net income for the period is likely to be:

330000
Answer:

Question 40
Which of the following is the most likely item to result in a deferred tax asset?

Select one:
A. Prepayment of insurance
B. Using straight-line depreciation for the books and accelerated depreciation for tax.
C. Point of sale revenue recognition for the books, and cost recovery method of revenue
recognition for tax.
D. Rent received in advanced