exam 2 material!

Ch. 16, 17, 18, 20

Taxable income of a corporation:

a. is based on generally accepted accounting principles

b. is reported on the corporation’s income statement

c. differs from financial income due to differences in intraperiod allocation between the two methods of income determinationn

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

d.

taxable income of a corporation differs from pretax financial income because of (permanent differences/temporary differences):

a. yes; yes

b. yes; no

c. no; no

d. no; yes

a.

deferred tax expense is the:

a. increase in the balance of deferred tax liability minus the increase in the balance of deferred tax asset

b. decrease in the balance of deferred tax asset minus the increase in balance of deferred tax liability

c. increase in deferred tax liability balance from the beginning to the end of the accounting period

d. increase in the balance of deferred tax assets minus the increase in the balance of deferred tax liability

c.

a major distinction between temporary and permanent differences is:

a. permanent differences are not representative of acceptable accounting practice

b. 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

c. temporary differences occur frequently, whereas permanent differences occur only once

d. temporary differences reverse in subsequent accounting periods, while permanent differences do not

d.

income tax expense is based on:

a. income from continuing operations

b. operating income

c. taxable income

d. pretax income

d.

a net operating loss (NOL) occurs for tax purposes in a year when tax-deductible expenses exceed taxable revenues. Companies can reduce future taxable income on the amount of NOL in the following way:

a. may be carried back 2 years or carried forward up to 20 years

b. must always be carried forward 20 years

c. may carry the net operating loss forward indefinitely

d. must always be carried back 2 years

c.

recognition of tax benefits in the loss year due to a loss carryforward requires:

a. the establishment of a deferred tax asset

b. only a note to the financial statements

c. the establishment of a deferred tax liability

d. the establishment of an income tax refund receivable

a.

the tax effect of a loss carryforward represents future tax savings and results in recognizing a deferred tax asset: True or False

True

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: True or False

True

the FASB believes that the most consistent method for accounting for income taxes is the:

a. carryback-carryforward method

b. benefit-obligation method

c. temporary-permanent method

d. asset-liability method

d.

under the asset-liability method, a deferred income tax asset or liability is usually classified as a:

a. current asset

b. non-current asset or liability

c. current or non-current according to the expected reversal date of the temporary difference

d. current or non-current based on the classification of the related asset (liability) for financial reporting purposes

b.

how are the income taxes payable and income tax refund receivable accounts reported in the balance sheet?:

a. the amounts cannot be netted and reported as a current asset or liability

b. the amounts cannot be netted and reported as noncurrent assets or liabilities

c. income tax payable is reported as a current liability, and income tax refund receivable is reported as a noncurrent asset

d. income tax payable is reported as a current liability, and income tax refund receivable is reported as a current asset

d.

accounting for income taxes can resul in the reporting of deferred taxes as:

a. a contra-asset account

b. a current asset

c. a noncurrent liability

d. a current liability

c.

the total income tax expense or benefit reported on the income statement is equal to:

a. the sum of the changes in the deferred tax assets, deferred tax liabilities, valuation allowance, and income tax payable for the year

b. the sum of the changes in the deferred tax assets, deferred tax liabilities, and the valuation allowance for the year

c. the sum of the changes in the deferred tax assets and deferred tax liabilities for the year

d. the sum of the changes in income tax expense, income tax payable, and the valuation allowance for the year

a.

which of the following is NOT a criterion for a lease to be recorded as a finance lease?:

a. the lease is cancelable

b. the lease term is for the major part of the economic life of the asset

c. there is a transfer of ownership

d. there is a bargain-purchase option

a.

in computing the present value of the minimum lease payments, the lessee should:

a. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee

b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee

c. use its incremental borrowing rate in all cases

d. use the lessor’s implicit interest rate if it is practicable and otherwise use its incremental borrowing rate

d.

the methods of accounting for a lease by the lessee are:

a. operating, sales, and capital lease methods

b. operating and capital lease methods

c. none of these answers are correct

d. operating and financing lease methods

d.

which of the following best describes current practice in accounting for leases?:

a. leases similar to installment purchases are capitalized

b. leases are not capitalized

c. all leases are capitalized

d. all long-term leases are capitalized

d.

the total charges to operations over the lease term are:

a. greater for a finance lease than an operating lease

b. not comparable between a finance lease and an operating lease

c. the same for a finance lease as an operating lease

d. less for a finance lease than an operating lease

c.

when a depreciable asset is leased under an operating lease, the lessor:

a. never recognizes amortization

b. must use activity-based amortization

c. defers amortization until the lease expires

d. records amortization in the normal manner

d.

when a lease is classified as an operating lease, :

a. no asset or liability is recorded by the lessee, only a rental expense

b. the lessee records a right-of-use asset and a lease liability

c. the lessee records only a lease liability

d. the lessor no longer records depreciation expense

b.

under the operating lease method, the lessor:

a. no longer reports the underlying asset on its balance sheet

b. realizes a gross profit on the sale of the asset

c. continues to recognize the underlying asset on its balance sheet and recognizes lease revenue

d. recognizes rental revenue using the effective interest amortization method

c.

in an operating lease, the lessee records:

a. amortization expense and lease expense

b. amortization expense

c. interest expense

d. lease expense

d.

in an operating lease, the lessee reports interest and amortization expenses on the income statement: True or False

False