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AC 211 – Intermediate Accounting II Chapter 16 Quiz 15 points
Select the best answer for each of the matching questions by placing the appropriate letter in the space provided. Select the best answer for each of the multiple choice questions by circling the appropriate letter. Matching questions are worth 1 point each, multiple choice questions 1-4 are worth 1 point each, and multiple choice questions 5-7 are worth 2 points each. Show all work on problems as partial credit may be given. MATCHING Listed below are five independent situations. For each situation indicate (by letter) whether it will create, (A) a deferred tax asset, (L) a deferred tax liability, or (N) neither. 1. 2. 3. 4. 5. ____ ____ ____ ____ ____ An operating loss carryback. Bad debt expense under the allowance method in the income statement, but only allowable under the direct write-off method for taxes. Interest earned on investments in state and local government bonds. Current year contributions not currently deductible due to tax limitations but which can be carried forward to future tax years. Prepaid expenses, tax deductible when paid.

MULTIPLE CHOICE 1. At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A footnote reveals that the entire $400,000 will be earned in next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a: A) B) C) D) Noncurrent deferred tax liability. Noncurrent deferred tax asset. Current deferred tax liability. Current deferred tax asset.

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Under SFAS 109 when there is a net operating loss carryforward: A) B) C) D) A deferred tax liability is recognized.2. the company would record: A) B) C) D) An increase in a deferred tax asset. A deferred tax equity account is created. Centipede Corp. In the absence of other temporary or permanent differences. 25.2 million. 2 . Sufficient financial and taxable income will exist in future years to realize the full tax benefit. Sufficient taxable income will be generated in future years to realize the full tax benefit. An increase in a deferred tax liability. If a company's deferred tax asset is not reduced by a valuation allowance. 29. A decrease in a deferred tax liability. A decrease in a deferred tax asset. Tax rates will not change in future years. 4. A magazine publisher collects one year in advance for subscription revenue. 3. 5. assuming a tax rate of 40%? A) B) C) D) 19. what was Centipede's income tax payable currently.6 million. had $80 in pretax accounting income. For the current year ($ in millions).2 million.6 million. In the year of providing the magazines. Two million in receivables were written off as uncollectible. This included bad debt expense of $6 based on the allowance method. 27. A deferred tax asset is recorded along with any applicable valuation allowance. and MACRS depreciation amounted to $35. and $20 in depreciation expense. A receivable is created. the company believes it is more likely than not that: A) B) C) D) Sufficient financial income will be generated in future years to realize the full tax benefit.

Trace also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million.500.000. $150 million.000 (900.6. $330.000. $30 million. 2005. Theodore elected a loss carryback. The company is subject to a tax rate of 40%. had $300 million in taxable income for the current year.000. Alamo Inc. No valuation account was deemed necessary for the deferred tax asset as of December 31. 3 . $210 million. What was Theodore's income tax expense in the year 2006? A) B) C) D) $450.000) 1. Theodore Enterprises had the following pretax income (loss) over its first three years of operations: 2004 2005 2006 $500. $180.000 For each year there were no deferred income taxes and the tax rate was 30%.000. In its 2005 tax return. 7. The total income tax expense for the year was: A) B) C) D) $390 million. $270.