ACCT 2000 Final: ACCT 19
CHAPTER 19
MULTIPLE CHOICE—Conceptual
21. Taxable income of a corporation
a. differs from accounting income due to differences in intraperiod allocation between the
two methods of income determination.
b. differs from accounting income due to differences in interperiod allocation and
permanent differences between the two methods of income determination.
c. is based on generally accepted accounting principles.
d. is reported on the corporation's income statement.
22 Taxable income of a corporation differs from pretax financial income because of
Permanent Temporary
Differences Differences
a. No No
b. No Yes
c. Yes Yes
d. Yes No
23. The deferred tax expense is the
a. increase in balance of deferred tax asset minus the increase in balance of deferred tax
liability.
b. increase in balance of deferred tax liability minus the increase in balance of
deferred tax asset.
c. increase in balance of deferred tax asset plus the increase in balance of deferred tax
liability.
d. decrease in balance of deferred tax asset minus the increase in balance of deferred
tax liability.
Test Bank for Intermediate Accounting, Fourteenth Edition
19 - 2
24. Machinery was acquired at the beginning of the year. Depreciation recorded during the life
of the machinery could result in
Future Future
Taxable Amounts Deductible Amounts
a. Yes Yes
b. Yes No
c. No Yes
d. No No
P25. A temporary difference arises when a revenue item is reported for tax purposes in a
period
After it is reported Before it is reported
in financial income in financial income
a. Yes Yes
b. Yes No
c. No Yes
d. No No
S26. At the December 31, 2012 balance sheet date, Unruh Corporation reports an accrued
receivable for financial reporting purposes but not for tax purposes. When this asset is
recovered in 2013, a future taxable amount will occur and
a. pretax financial income will exceed taxable income in 2013.
b. Unruh will record a decrease in a deferred tax liability in 2013.
c. total income tax expense for 2011 will exceed current tax expense for 2013.
d. Unruh will record an increase in a deferred tax asset in 2013.
P27. Assuming a 40% statutory tax rate applies to all years involved, which of the following
situations will give rise to reporting a deferred tax liability on the balance sheet?
I. A revenue is deferred for financial reporting purposes but not for tax purposes.
II. A revenue is deferred for tax purposes but not for financial reporting purposes.
III. An expense is deferred for financial reporting purposes but not for tax purposes.
IV. An expense is deferred for tax purposes but not for financial reporting purposes.
a. item II only
b. items I and II only
c. items II and III only
d. items I and IV only
S28. A major distinction between temporary and permanent differences is
a. permanent differences are not representative of acceptable accounting practice.
b. temporary differences occur frequently, whereas permanent differences occur only
once.
c. once an item is determined to be a temporary difference, it maintains that status;
however, a permanent difference can change in status with the passage of time.
d. temporary differences reverse themselves in subsequent accounting periods,
whereas permanent differences do not reverse.
Accounting for Income Taxes
19 - 3
S29. Which of the following are temporary differences that are normally classified as expenses
or losses that are deductible after they are recognized in financial income?
a. Advance rental receipts.
b. Product warranty liabilities.
c. Depreciable property.
d. Fines and expenses resulting from a violation of law.
S30. Which of the following is a temporary difference classified as a revenue or gain that is
taxable after it is recognized in financial income?
a. Subscriptions received in advance.
b. Prepaid royalty received in advance.
c. An installment sale accounted for on the accrual basis for financial reporting
purposes and on the installment (cash) basis for tax purposes.
d. Interest received on a municipal obligation.
S31. Which of the following differences would result in future taxable amounts?
a. Expenses or losses that are tax deductible after they are recognized in financial
income.
b. Revenues or gains that are taxable before they are recognized in financial income.
c. Revenues or gains that are recognized in financial income but are never included in
taxable income.
d. Expenses or losses that are tax deductible before they are recognized in
financial income.
32. Stuart Corporation's taxable income differed from its accounting income computed for this
past year. An item that would create a permanent difference in accounting and taxable
incomes for Stuart would be
a. a balance in the Unearned Rent account at year end.
b. using accelerated depreciation for tax purposes and straight-line depreciation for book
purposes.
c. a fine resulting from violations of OSHA regulations.
d. making installment sales during the year.
33. An example of a permanent difference is
a. proceeds from life insurance on officers.
b. interest expense on money borrowed to invest in municipal bonds.
c. insurance expense for a life insurance policy on officers.
d. all of these.
34. Which of the following will not result in a temporary difference?
a. Product warranty liabilities
b. Advance rental receipts
c. Installment sales
d. All of these will result in a temporary difference.
35. A company uses the equity method to account for an investment. This would result in
what type of difference and in what type of deferred income tax?
Type of Difference Deferred Tax
a. Permanent Asset
b. Permanent Liability
c. Temporary Asset
d. Temporary Liability
