and

QBank Quiz
capitalizes
the asset, a
Question #1 of 10 firm that
leases the
For analytical purposes, if a deferred tax liability is expected to same asset
not be reversed, it should be treated as a(n):
with a
A) an addition to equity. finance lease
B) liability. will have:
C) immaterial amount and ignored.

Question #2 of 10

When analyzing a company's financial leverage, deferred tax

liabilities are best classified as:

A) a liability.

B) a liability or equity, depending on the company's

particular situation.
C) neither as a liability, nor as equity.

Question #3 of 10

Under IFRS, the principal portion of a finance lease payment:

A) is recognized as CFI by both the lessor and the lessee.

B) is recognized as CFF by the lessee and CFI by the

lessor.
C) may be recognized as CFO by either the lessor or the
lessee.

Question #4 of 10

Deferred tax items should be measured based on the:

A) tax rate that will apply when the temporary difference

reverses.
B) firm's effective tax rate at the time when the
temporary difference reverses.
C) statutory tax rate at the time when the temporary
difference is recognized.

Question #5 of 10

Compared to a firm that purchases a longlived asset for cash

1
 C)
Return on
equity
(ROE).

A) higher longlived assets.

B) higher liabilities.
C) lower expenses in the period the asset is acquired.

Question #6 of 10

Cash flows from an operating lease are recognized as:

A) CFF by the lessee and CFO by the lessor.

B) CFO by both the lessor and the lessee.

C) CFO by the lessee and CFI by the lessor.

Question #7 of 10
Which of the following statements about tax deferrals is NOT
correct?

A) Taxes payable are determined by pretax income and

the tax rate.
B) Income tax paid can include payments or refunds for
other years.
C) A deferred tax liability is expected to result in future
cash outflow

Question #8 of 10

Which of the following financial ratios is least likely to be

affected by classification of deferred taxes as a liability or
equity?

A) Return on assets (ROA).

B) Leverage ratio.
2
Question #9 of 10

Which of the following best describes valuation allowance? Valuation allowance is a reserve:

A) against deferred tax assets based on the likelihood that those assets will not be
realized.
B) created when deferred tax assets are greater than deferred tax liabilities.
C) against deferred tax liabilities based on the likelihood that those liabilities will be paid.

Question #10 of 10

Which of the following statements regarding deferred taxes is NOT correct?

A) Only those components of deferred tax liabilities that are likely to reverse should be
considered a liability.
B) If deferred taxes are not expected to reverse in the future then they should be classified
as equity.
C) If deferred tax liabilities are not included in equity, debttoequity ratio will be reduced.