Question 1

Company A had depreciation of $14,000 and CCA of $12,500 during its first year of operations.The tax rates for Years 1 and 2 were 25% and 20% respectively.The Year 2 tax rate was enacted in Year 1.At the end of year 1,this will result in:

Accepted Answer

A)   a deferred income tax asset of $300.
B)   a deferred income tax liability of $300.
C)   a deferred income tax asset of $375.
D)   a deferred income tax liability of $375. A

Question 2

At the end of 2014,the only expected future temporary difference is implied by the following account found in the balance sheet:  The footnotes reveal that the prepaid rent applies only to 2015.You would also expect to find which of the following in the balance sheet:

Accepted Answer

A)   Current deferred tax liability
B)   Current deferred tax asset
C)   Noncurrent deferred tax liability
D)   Noncurrent deferred tax asset B

Question 3

The following information is available to you: Income before tax $1,540,000,depreciation,$309,000; CCA,$350,000; tax rate,40%.Prepare the journal entry to record taxes for the year.(Assume there are no previous tax differences.)

Accepted Answer

Taxable income = 1,540,000 + 309,000 - $350,000 = 1,* 40% = $599,600
Deferred income tax liability = 309,000 - 350,000 = (41,000)* 40% = $16,400

Question 4

"Taxable amounts" include expenses and losses that are included in the tax return BEFORE they are recognized for accounting purposes.

Accepted Answer

A) True 
 B)False

Question 5

If the enacted tax rate is changed for the current and future years,the earnings effect of the change in the beginning balances of the deferred tax assets is recognized in the current year.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would result in a deferred tax asset?

Accepted Answer

A)   Using straight-line depreciation for the books and accelerated depreciation for tax.
B)   Rent received in advance.
C)   Warranty provision.
D)   Point of sale revenue recognition for the books, and cost recovery method of revenue recognition for tax.

Question 7

The existence of deferred tax assets on the balance sheet is dependent on a company's going concern status.

Accepted Answer

A) True 
 B)False

Question 8

ABC has taxable income of $5,000,deferred taxable amounts of $4,000,and future deductible amounts of $2,000 at the end of its first year of operations.Calculate ABC's pre-tax accounting income for this first year.

Accepted Answer

The answer of ABC has taxable income of $5,000,deferred taxable...

Question 9

GFH had pre-tax accounting income of $5,600 during 2014.GFH used accelerated depreciation for tax purposes ($4,000)and straight-line depreciation for financial accounting purposes ($800).During 2014 GFH accrued warranty expenses of $3,600 and paid $2,000 cash to honour warranties.GFH's taxable income for 2014 would be (show calculations):

Accepted Answer

The answer of GFH had pre-tax accounting income of $5,600...

Question 10

ABC Inc.purchased new machinery for $2 million on January 1^st,2014.For accounting purposes,the company depreciates all machinery on a straight-line basis (no salvage value)over a five year period.For tax purposes,CCA on all machinery is taken at a rate of 20%,with half a year's CCA taken in the year of acquisition.The tax rate for 2014 is 40%.The tax rate for years 2015 and later is 35%.Assume that all rates are enacted in the year to which they pertain.Using the shortcut approach,determine the deferred income tax asset or liability at the end of 2014.

Accepted Answer

The answer of ABC Inc.purchased new machinery for $2 million...

Question 11

The taxes payable method results in better matching than does the comprehensive allocation method.

Accepted Answer

A) True 
 B)False

Question 12

Under the indirect method of preparing cash flows from operating activities,deferred income tax expense must be added back to net income.

Accepted Answer

The answer of Under the indirect method of preparing cash...

Question 13

Name two conditions necessary for a deferred tax liability to result in an actual cash outflow.

Accepted Answer

The answer of Name two conditions necessary for a deferred...

Question 14

Income tax expense generally equals the product of the current period income tax rate and pre-tax accounting income.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following could never be subject to inter-period tax allocation?

Accepted Answer

A)   Proceeds from life insurance
B)   Depreciation expense on operational assets
C)   Estimated warranty expense
D)   Rent revenue

Question 16

A characteristic of the taxes payable method is that:

Accepted Answer

A)   Tax owed for the period will equal accounting income tax expense.
B)   Inter-period income tax allocation is applied to some types of temporary differences but not all.
C)   The matching principle is respected.
D)   It is mandatory for private companies.

Question 17

The use of inter-period income tax allocation is mandatory under ASPE.

Accepted Answer

A) True 
 B)False

Question 18

Permanent differences are those that factor into the computation of both net income and taxable income.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following does not help in explaining why (1)and (2)are different: (1)Income tax expense
(2)The product of pre-tax income and the current tax rate.

Accepted Answer

A)   Permanent differences
B)   Temporary differences
C)   The fact that future and current tax rates are different
D)   A change in the effective tax rate

Question 20

Under the liability approach,deferred taxes on the balance sheet are valued at the tax rate in that will be in effect when the temporary differences reverse.

Accepted Answer

A) True 
 B)False

Exam 5: The Statement of Cash Flows

Company A had depreciation of $14,000 and CCA of $12,500 during its first year of operations.The tax rates for Years 1 and 2 were 25% and 20% respectively.The Year 2 tax rate was enacted in Year 1.At the end of year 1,this will result in:

At the end of 2014,the only expected future temporary difference is implied by the following account found in the balance sheet: The footnotes reveal that the prepaid rent applies only to 2015.You would also expect to find which of the following in the balance sheet:

The following information is available to you: Income before tax $1,540,000,depreciation,$309,000; CCA,$350,000; tax rate,40%.Prepare the journal entry to record taxes for the year.(Assume there are no previous tax differences.)

"Taxable amounts" include expenses and losses that are included in the tax return BEFORE they are recognized for accounting purposes.

If the enacted tax rate is changed for the current and future years,the earnings effect of the change in the beginning balances of the deferred tax assets is recognized in the current year.

Which of the following would result in a deferred tax asset?

The existence of deferred tax assets on the balance sheet is dependent on a company's going concern status.

ABC has taxable income of $5,000,deferred taxable amounts of $4,000,and future deductible amounts of $2,000 at the end of its first year of operations.Calculate ABC's pre-tax accounting income for this first year.

The taxes payable method results in better matching than does the comprehensive allocation method.

Under the indirect method of preparing cash flows from operating activities,deferred income tax expense must be added back to net income.

Name two conditions necessary for a deferred tax liability to result in an actual cash outflow.

Income tax expense generally equals the product of the current period income tax rate and pre-tax accounting income.

Which of the following could never be subject to inter-period tax allocation?

A characteristic of the taxes payable method is that:

The use of inter-period income tax allocation is mandatory under ASPE.

Permanent differences are those that factor into the computation of both net income and taxable income.

Which of the following does not help in explaining why (1) and (2) are different: (1) Income tax expense (2) The product of pre-tax income and the current tax rate.

Under the liability approach,deferred taxes on the balance sheet are valued at the tax rate in that will be in effect when the temporary differences reverse.