ACTIVITY 5

Pretest:5-1

Instructions: Encircle the letter of the best answer to each questions.

1. One of Entity A’s delivery trucks had an accident on February 14, 20x2. The truck is totally
wrecked and is uninsured. Entity A’s December 31, 20x1 current-period financial statements
were authorized for issue on March 31, 20x2. Entity A asked you if it can write-off the carrying
amount of the destroyed truck from its December 31, 20x1 statement of financial position.
What will you tell Entity A?
a. Yes, go ahead. Write-off the truck because the event is an adjusting event.
b. No. Don’t write-off the truck because the event is a non-adjusting event.
c. No. Don’t write-off the truck because the event is a non-adjusting event. You should,
however, disclose the event if you deem it to be material.
d. Yes, go ahead. I will support you.

2. Which of the following is most likely to be a non-adjusting event?

a. A major customer liquidates its business after the end of the reporting period.
b. The entity announces a major restructuring after the end of the reporting period.
c. The settlement after the reporting period of a court case that confirms that the entity
has a present obligation at the end of reporting period.
d. The determination after the reporting period of the cost of asset purchased, or the
proceeds from asset sold, before the end of reporting period.

3. These are differences that have future tax consequences.

a. Permanent differences
b. Temporary differences
c. Taxable differences
d. Deductible differences

4. This type of difference will give rise to deferred tax liability.

a. Taxable temporary difference
b. Permanent difference
c. Deductible temporary difference
d. Deferred difference

5. Deferred tax assets and deferred tax liabilities do not alter the tax to be paid in the current
period. However, they cause
 Tax payments to either increase or decrease when they reverse in a future period. The
reversal of which of the following will cause an increase in tax payment?

a. Deferred tax liability

b. Deferred tax asset
c. Deferred tax expense
d. Deferred tax benefit