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91 Cards in this Set
- Front
- Back
Smith Company suffers an operating loss of $100K in 2015. Smith incurred taxable income of $150K in 2013 and taxable income of $75K in 2014. Smith elects to use the NOL carryback. Which years will the NOL carryback affect? |
2013 only |
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A deferred tax liability or asset is based on _________________ tax rates and laws. |
enacted |
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All temporary differences are categorized in which of the following ways? |
Future taxable amounts; future taxable amounts |
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________________________ provide useful information to investors and creditors. |
Financial accounting standards |
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____________ raise public revenues and influence behaviors. |
Tax Laws |
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The enacted tax rate is |
used to measure deferred tax assets and liabilities in the years the temporary difference reverses. |
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Uncertainty in income tax expenses results from |
management taking a tax position that might differ from the IRS position. |
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We reduce a deferred tax __________ by a valuation allowance if it is more likely then not that some portion or all of the deferred tax asset will not be realized. |
asset |
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A future taxable amount means taxable income will be ________ relative to pretax accounting income, whereas a future deductible amount means taxable income will be _____ relative to accounting income. |
increased; decreased |
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A difference of when an item is included in financial income and when an item is included in taxable income is referred to as a _______ difference. |
temporary |
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Items that result in deferred tax assets or liabilities that would be classified as current. |
bad debt expense; warranties; subscription revenue earned in the next 12 months |
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A deferred tax asset is created when taxable gross income is ________ than financial statement revenues. |
greater |
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A NOL ____________ reduces future taxable income. |
carryforward |
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Regina Corporation is in its third year of operations and has net loss of $100K/ Regina had taxable income of $10K and $30K in its 1st and 2nd year of operations, respectively. They expect to be profitable within the next year. The enacted tax rate if 40%. What disclosures are required on Regina's income statement in the year of the loss? |
Income tax benefit from NOL carryback $16K; Income tax benefit from NOL carryforward $24K. |
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Depreciation on tax return in excess of financial reporting depreciation expense is a ____________ difference that creates a deferred tax liability |
temporary |
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Life insurance proceeds on death of executive create __________ difference that results in taxable income lower than financial reporting income |
permanent |
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Receipt of rent revenue in advance is a temporary difference that creates a |
deferred tax asset |
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Fines or penalties for violating a law are permanent difference that results in taxable income |
greater than financial reporting income |
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______ tax allocation is allocating income taxes among financial statement components within a particular reporting period. |
Intraperiod |
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Accounting for income taxes is consistent with the ___________ concept of accounting. |
accrual |
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A __________ results in future taxable amounts when the temporary difference reverses. |
deferred tax liability |
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Negative taxable income is another name for |
net operating loss |
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In a classified balance sheet, deferred tax assets and liabilities should be classified as ______________ and _____________. |
current; noncurrent |
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A _____________ difference is never deductible or never taxable. |
permanent |
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Revenue being reported on the tax return after the income statement, or an expense being reported on the tax return before the income statement can cause what? |
a deferred tax liability to occur |
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A permanent difference is a difference that is |
never on the tax return. |
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The ______________ ______________ of an asset or liability is its original value for tax purposes reduced by any amounts included to date on tax returns. |
tax basis |
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Required disclosures for taxes in the notes to the financial statements: |
total of all deferred tax assets; total valuation allowance for deferred tax assets; effect of each type of temporary difference |
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Tax depreciation in excess of book depreciation is classified as |
deferred tax liability-noncurrent |
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Bad debt deductions in excess of bad debt expense are classified as |
deferred tax liability-current |
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Rent received in advance that will be reported in financial income two years later is a |
deferred tax asset-noncurrent |
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Warranty expense for financial reporting greater than warranties paid is a |
deferred tax asset-current |
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_________ tax allocation is allocating income taxes between two or more reporting periods |
interperiod |
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1. Calculate the income tax on the tax return; 2. Calculate what the ending balance in the deferred tax liability or asset should be; 3. Calculate the change in the deferred tax assets and liabilities necessary. |
The steps for determining tax expense in the proper order. |
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What numbers are combined to determine income tax expense? |
Changes in deferred tax assets and liabilities; change in liability for uncertain tax positions; income tax payable; change in valuation allowance for deferred tax assets |
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Regina Corporation is in its third year of operations and has net loss of $100K. Regina had taxable income of $10K and $30K in its 1st and 2nd year of operations, respectively. They expect to be profitable within the next year. The enacted tax rate if 40%. Regina will carryback and carryforward the NOL. What is the net loss on the IS for financial reporting purposes in year 3?
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Net loss $60K |
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Income (or loss) from continuing operations and discontinued operations should be reported separately, _____________ of tax on the income statement. |
net |
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A NOL _________ must be applied to the earlier year first and then brought forward to the next year. |
carryback |
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A deferred tax ________ occurs when there is a future deductible amount. |
asset |
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A _________ difference is created when there is a timing difference of when an item is included in pretax accounting income and taxable income, whereas a _______ difference is one in which the amount is never included or deductible on the tax return |
temporary; permanent |
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Newberry Corp has pretax accounting income of $100K. They have tax depreciation in excess of financial accounting depreciation of $20K. Bad debt expense on the income statement was $5K and bad debts for tax reporting was $2K. The enacted tax rate is 40%. What entires will be included in the JE to record tax at year end? |
Debit deferred tax asset $1200; credit income taxes payable $33,200; credit deferred tax liability $8000 |
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Required disclosure related to deferred tax assets and deferred tax liabilities: |
the approximate tax effect of each type of temporary difference |
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Companies are required to disclose their effective tax rate reconciliation indicating the _________ and ________ of each significant reconciling item. |
amount; nature |
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Deferred tax assets or liabilities that are classified as current: |
warranties and bad debts |
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What must be disclosed in a company's disclosure notes regarding NOL carryforwards? |
expiration date and amount of NOL |
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Rocky Corp receives rent in advance of $100K in 2015. The timing difference is expected to reverse $30K in 2016 and $70K in 2017. The enacted tax rates are 30% in 2015 and 2016 & 40% in 2017. What is the amount in the deferred tax asset account at December 31, 2015? |
$37,000 |
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Little Corp has pretax accounting income of $100K. Little has interest on municipal bonds of $9K. Depreciation for tax purposes is $4K greater than depreciation for financial reporting purposes. Little paid life insurance on executive officers of $5K. Warranty expense was $10K and warranties paid for tax purposes was $8K. Calculate taxable income. |
$94K |
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___________ expense is calculated as the result of the combination of income tax payable and any changes in deferred tax assets and liabilities |
tax |
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Interest on municipal bonds & life insurance proceeds on an insured executive are ________________ |
permanent differences |
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A deduction that is allowed on the tax return in one year, but is not recognized in financial income until a later period is an example of a |
temporary difference |
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An amount that is deducted on the tax return but not included as an expense on the income statement & revenue included on the income statement but not on the tax return will create a |
deferred tax liability |
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In year 1, Casa Corp has depreciation exp for income statement purposes of $20K. The depreciation deduction on the tax return was $30K. The enacted tax rate is 40%. if this is the only difference between pretax income and taxable income the JE to record tax expense for the year would include |
credit taxes payable of $36K; debit tax expense of $40K, credit deferred tax liability of $4K |
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An underlying assumption of the balance sheet is that ________ will be recovered and __________ will be settled. |
assets; liabilities |
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Deferred tax assets are recognized when temporary differences cause |
taxable income to be higher than financial income |
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Companies with large investment in buildings and equipment often have large deferred tax liabilities from temporary differences in |
depreciation |
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Jenson includes $100K of income on the tax return but does not report it on the income statement until the following year. This difference will result in a deferred tax |
asset |
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Subscriptions collected in advance would create a deferred tax |
asset |
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When a deferred tax liability is created, the deferred tax liability account is __________, and when the item reverses, the deferred tax account is ___________. |
credited;debited |
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Noncurrent deferred tax liabilities should be netted against |
noncurrent deferred tax assets |
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The two steps used for reporting uncertain tax positions: |
It is more likely than not that the position will be sustained & the tax benefit is measured as the largest amount of benefit that is greater than 50% likely to be realized |
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Income tax expense is comprised of what components? |
current income tax payable and deferred tax amount |
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Payne Corporation has a permanent difference of $20K for life insurance premiums on corporate executives. What effect does this have on the effective tax rate? |
it is higher than the statutory rate |
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The benefit of future deductible amounts can be realized when? |
only if future income is at least equal to the deferred deduction amount |
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They make an unprofitable company an attractive target for acquisition and the potential tax benefit can provide cash savings for the company in the future. These are the benefits of a |
NOL carryforward |
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The determination as to whether a deferred tax asset or liability is current or noncurrent relies on |
the classification of the related asset or liability |
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What three things occur when a company repatriates foreign earnings and repatriates cash? |
Higher effective tax rate, higher tax bill, higher tax expense |
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A NOL can be carried back ______ years and carried forward 20 years. |
2 |
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Accelerated depreciation on the tax return in excess of depreciation on the income statement & unrealized gains from recording investments at fair value can create a deferred tax __________ |
liability |
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Companies are/are not required to include a reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits in a disclosure note |
are |
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Deferred tax assets and liabilities can be based on |
future deductible and taxable amounts & present temporary book-tax differences |
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Items related to these make up other comprehensive income: |
Derivatives; investments; post-retirement benefit plans; foreign currency translations |
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Included in the JE for deferred taxes: |
change in deferred tax asset or liability; income tax payable and income tax expense or benefit
|
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The effects of a valuation allowance account for deferred taxes: |
increases tax expense and reduces the deferred tax asset account |
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Deferred tax assets result when taxable income is _______ now than later. |
higher |
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When managers make decisions, they consider tax effects because their goal is to |
minimize or delay payment of taxes |
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When a company takes an uncertain tax position and it is uncertain when the position will be resolved, where should liability for potential additional tax be reported on the financial statements? |
As a long term liability |
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The effective tax rate equals __________ divided by pretax accounting income |
tax expense |
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When estimated expenses are recognized in income statements when incurred, but deducted on tax returns in later years when paid ___________ is created |
deferred tax asset |
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When a company recognizes a deferred tax asset relative to revenue, what is the effect? |
the company is prepaying the income tax on the revenue |
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The income tax benefit of both a NOL carryback and a NOL carryforward is recognized when? |
in the year the NOL occurs |
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The carryforward election is a choice that must be made in the year the NOL occurs, and the choice is |
irrevocable |
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Deferred tax liability is _______________ for managing cash flows and minimizing taxes paid int he current year. |
more desirable |
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A company may elect to forego the NOL carryback provision when |
tax rates are expected to increase |
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The valuation allowance for deferred tax assets is reevaluated how often? |
at the end of each reporting period |
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Deferred tax liabilities __________ risk as measured by the debt to equity ratio. |
increase |
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The income tax benefit of a NOL carryforward is recognized for accounting purposes when? |
in the year the NOL occurs |
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When is the effect of a change in tax rate on deferred tax liabilities and deferred tax assets reflected in the financial statements? |
in the year of the enactment of the change in tax rate |
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Discontinued operations are a separate line item reported net of tax T/F |
true |
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When the enacted tax rates change, deferred tax assets and liabilities are revalued and the resulting amount of the adjustment is reflected in which account |
income tax expense |
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Temporary differences are |
all differences that will result in taxable or deductible amounts in future periods |
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A deferred tax liability will result in tax being paid |
in a subsequent year |