ACCT 3342 Exam 3 Definitions

Taxable income of a corporation

differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting.

Taxable income of a corporation differs from pretax financial income
because of

Permanent Differences: Yes

Temporary Differences: Yes

Machinery was acquired at the beginning of the year. Depreciation
recorded during the life of the machinery could result in

Future Taxable Amounts: Yes

Future Deducible Amounts: Yes

A major distinction between temporary and permanent differences is

Temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

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?

Product warranty liabilities

Which of the following differences would result in future taxable amounts?

Expenses or losses that are tax deductible before they are recognized in financial income.

An example of a permanent difference is
a. proceeds from life insurance on officers.
b. interest revenue on municipal bonds.
c. insurance expense for a life insurance policy on officers.

All - Proceeds from life insurance on officers, interest revenue on municipal bonds, and insurance expense for a life insurance policy on officers

A company uses the equity method to account for an investment for
financial reporting purposes. This would result in what type of difference
and in what type of deferred income tax?

Type of difference: Temporary

Deferred Tax: Liability

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates?

I. Accrual for product warranty liability.
II. Subscriptions received in advance.
III. Prepaid insurance expense.

I and II only

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be

Reported as an adjustment to income tax expense in the period of change

Recognition of tax benefits in the loss year due to a loss carry forward requires

The establishment of a deferred tax asset.

In a defined-contribution plan, a formula is used that

requires an employer to contribute a certain sum each period based on the formula.

In a defined-benefit plan, a formula is used that

Defines the benefits that the employee will receive at the time of retirement

Which of the following is not a characteristic of a defined-contribution pension plan?

The benefits to be received by employees are determined by an employee’s highest compensation level defined by the terms of the plan.

In a defined-benefit plan, the relationship between the amount funded and the amount reported for pension expense is as follows:

Pension expense may be greater than, equal to, or less than the amount funded.

The computation of pension expense includes all the following except

Liability gains or losses due to changes in actuarial assumptions in the period.

The actual return on plan assets

Is equal to the changes in fair value of the fund assets minus the contributions to the fund assets plus benefits paid.

Which of the following items should be included in pension expense
calculated by an employer who sponsors a defined-benefit pension plan for its employees?

Fair value of plan assets: No

Amortization of prior service cost: Yes

A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the

Project benefit obligation exceeds the fair value of the plan assets

When a company amends a pension plan, for accounting purposes, prior service costs should be

Recorded in other comprehensive income (PSC)

Gains and losses that relate to the computation of pension expense should be

Recorded currently in the future by applying the corridor method which provides the amount to be amortized.

A net pension asset is reported when

Pension plan assets at fair value exceed the projected benefit obligation.