Which statement regarding the objectives of financial accounting and the Internal

Revenue Code is true?

An objective in financial accounting is to provide useful information to decision makers
about companies.
Differences between pretax financial income and taxable income in an accounting
period that will not reverse in a later accounting period are called
permanent differences
Differences between pretax financial accounting and taxable income that are expected
to reverse in one or more future accounting periods are called
temporary differences
Permanent differences between pretax financial income and taxable income result when
the SEC imposes a penalty on a company
Which of the following would not result in a permanent difference between pretax
financial income and taxable income?
Product warranty costs
Which of the following is not a timing difference that would cause pretax financial
accounting income to differ from taxable
Life insurance proceeds are received by a corporation upon the death of an insured
employee of the corporation
In accounting for income taxes, percentage depletion in excess of cost depletion is an
example of
a permanent difference
Each of the following can result in a temporary difference between pretax financial
income and taxable income except
percentage depletion in excess of cost depletion on wasting assets
The amount owed the IRS is recorded in the accounting records in which account
Income Tax Liability
Interperiod income tax allocation is based on the assumption that
permanent differences do not have deferred tax consequences
Which of the following transaction would typically result in the creation of a deferred tax
liability?
Gross profit on installment sales is recognized currently in pretax financial income but is
not taxable for income tax purposes until cash is received
Which of the following statements regarding the allocation of income taxes is NOT true?
With comprehensive tax allocation, income taxes on all transactions and events are
viewed as affecting cash flows in both the period of origination and the period of
reversal
In pushing for comprehensive allocation of income taxes, FASB argued that
income tax expense should be based on all temporary differences
Current GAAP requires which of the following tax allocation approaches and methods?
Approach : Comprehensive
Method : Asset/Liability
When Congress changes the tax laws or rates, a corporation's deferred tax liability and
asset accounts
are adjusted as of the beginning of the year in which the change occurred
The asset/liability method of tax allocation should be followed for
Inter YES
Intra Yes
Assuming there are no prior period adjustments during the fiscal year, net income would
be affected by
Inter : Yes
Intra : No
The interperiod tax allocation method that is balance-sheet oriented, reports deferred
taxes based on the future enacted tax rates, and more closely meets the conceptual
definitions of assets and liabilities established by the FASB is the
asset/liability method
Which of the following statements regarding current and deferred income taxes is NOT
correct?
The income tax obligation is determined by applying the historical tax rates to the
taxable income for the year.
All of the following involve a temporary difference for purposes of income tax allocation
except
interest on municipal bonds
All of the following involve a temporary difference for purposes of income tax allocation
except
deductions that are allowed for income tax purposes but that do not qualify as expenses
under generally accepted accounting principles
Interperiod tax allocation is required for all of the following situations except
investment income recognized by the equity method for accounting purposes but as
income when received for tax purposes
Life insurance proceeds payable to a corporation upon the death of an insured
employee are an example of
a permanent difference
Temporary differences arise when revenues or gains are included in pretax financial
income
Prior to the Time They are Included in Taxable Income
Yes
After the Time they are included in taxable income
Yes
Temporary differences arise when expenses or losses are deducted to compute taxable
income
Prior to the Time They are Included in Taxable Income
Yes
After the Time they are included in taxable income
Yes
Permanent differences impact
current tax liabilities
All of the following are conclusions reached by the FASB regarding accounting for
deferred taxes except
the use of a present value approach is acceptable
Which one of the following requires interperiod tax allocation?
warranty expenses related to a three-year warranty period
A deferred tax asset would result if
a company recorded more warranty expense in 2010 than cash paid in 2010 for
warranty repairs
Revenue from installment sales is recognized in the period received for tax purposes
and recognized in the period earned for accounting purposes. If these periods are
different, this is an example of a
temporary difference that gives rise to interperiod tax allocation
Examples of positive evidence cited by the FASB to indicate that a valuation allowance
for the tax benefits from a deferred tax asset is not needed include all of the following
except
a history of using operating loss carryforwards
An operating loss carryforward occurs when
prior taxable income is insufficient to offset the current period operating loss
Which one of the following statements regarding operating losses is not true?
The tax enefit of an operating loss carryforward is to be recognized in the period of loss
as a current receivable
When accounting for the current impact of loss carrybacks and carryforwards it is proper
to
recognize the tax benefit of the operating loss carryback as an asset
Intraperiod tax allocation would be appropriate for
all of these
an extraordinary gain
a loss from operations of a discontinued segment
the cumulative effects of changes in accounting principles
In applying intraperiod income tax allocation to discontinued operations, extraordinary
items, cumulative effects of changes in accounting principles, and prior period
adjustments, what tax rate should be used?
marginal (incremental) income tax rate
Which of the following activities does not result in a "tax credit" for income tax
purposes?
investing in certain municipal bonds
Income taxes for financial accounting purposes are apportioned to each of the following
items except
other revenues and expenses
Which one of the following requires intraperiod tax allocation?
prior period adjustments
Which one of the following transactions would result in the creation of a noncurrent
deferred tax liability?
using an accelerated depreciation method for income tax purposes and the straight line
method for financial reporting purposes
The recognition of gross profit on installment sales at point of sale for financial reporting
purposes but reporting the profit when the cash is received for income tax purposes
results in deferred taxes reported in which section of the balance sheet?
current liabilities section
The acceptable balance sheet classifications for deferred tax assets and deferred tax
liabilities under GAAP and IFRS are
GAAP : current and noncurrent, respectively
IFRS : noncurrent only