Exam 19: Accounting for Income Taxes

Recognizing a valuation allowance for a deferred tax asset requires that a company

Which of the following is false regarding accounting for deferred taxes under IFRS?

Deferred tax expense is the increase in the deferred tax liability balance from the beginning to the end of the accounting period.

Permanent differences do not give rise to future taxable or deductible amounts.

Use the following information for questions 52 and 53. At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an estimated useful life of 5 years and an estimated salvage value of $100,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2015 and all future years. -At the end of 2015, what are the book basis and the tax basis of the asset?

Use the following information for questions 73 and 74. Kraft Company made the following journal entry in late 2014 for rent on property it leases to Danford Corporation. The payment represents rent for the years 2015 and 2016, the period covered by the lease. Kraft Company is a cash basis taxpayer. Kraft has income tax payable of $184,000 at the end of 2014, and its tax rate is 35%. -Assuming the income taxes payable at the end of 2015 is $204,000, what amount of income tax expense would Kraft Company record for 2015?

A deferred tax liability is classified on the balance sheet as either a current or a noncurrent liability. The current amount of a deferred tax liability should generally be

All of the following are procedures for the computation of deferred income taxes except to

A reconciliation of Gentry Company's pretax accounting income with its taxable income for 2014, its first year of operations, is as follows: The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 40% in 2014, 35% in 2015 and 2016, and 30% in 2017. The total deferred tax liability to be reported on Gentry's balance sheet at December 31, 2014, is

Under IFRS, all tax effects are charged or credited to income.

A major distinction between temporary and permanent differences is

Use the following information for questions 66 and 67. Mitchell Corporation prepared the following reconciliation for its first year of operations: The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 35%. -What amount should be reported in its 2015 income statement as the deferred portion of income tax expense?

With regard to recognition of deferred tax assets, IFRS requires

A possible source of taxable income that may be available to realize a tax benefit for loss carryforwards is future reversals of existing taxable temporary differences.

Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2014 related to $900,000 of excess depreciation. In December of 2014, a new income tax act is signed into law that lowers the corporate rate from 40% to 35%, effective January 1, 2016. If taxable amounts related to the temporary difference are scheduled to be reversed by $450,000 for both 2015 and 2016, Palmer should increase or decrease deferred tax liability by what amount?

Deferred taxes should be presented on the balance sheet

Use the following information for questions 93 and 94. Operating income and tax rates for C.J. Company's first three years of operations were as follows: -Assuming that C.J. Company opts only to carryforward its 2015 NOL, what is the amount of deferred tax asset or liability that C.J. Company would report on its December 31, 2015 balance sheet?

Match the approach, IFRS or U.S. GAAP, with the location where tax effects are reported:

An example of a permanent difference is

A company reduces a deferred tax asset by a valuation allowance if it is probable that it will not realize some portion of the deferred tax asset.