ACCT 301B Conceptual Questions 15,18,19

Dilutive convertible securities must be used in the computation of

diluted earnings per share only

Detachable stock warrants outstanding should be classified as

paid-in capital

The issuance of warrants arises under all of the following situations except to:

give existing stockholders the preemptive right to purchase additional stock.

A temporary difference that would result in a deferred tax liability is

Excess of tax depreciation over financial accounting depreciation.

Royalties are recognized when received in year 3 for income tax purposes and recognized when earned in year 4 for financial statement purposes. This an example of a

Temporary difference that gives rise to deferred taxes.

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:

may carry the net operating loss forward indefinitely.

A deferred tax liability represents the:

increase in taxes payable in future years as a result of taxable temporary differences

Which of the following may decrease the annual pension expense amount?

Actual return on plan assets.

What causes a Deferred Tax Liability (DTL)?

Revenue recognized in financial statements before it is taxable

Which of the following is an example of a Deferred Tax Asset (DTA)?

Warranty costs

Why do prepaid expenses create a Deferred Tax Asset (DTA)?

Prepaid expenses reduce taxable income in the current period but are recognized as an expense later for financial reporting

Which of the following transactions would most likely result in a Deferred Tax Liability (DTL)?

A company recognizes revenue before receiving payment from a customer

How does Unearned Revenue create a Deferred Tax Liability (DTL)?

For tax purposes, the revenue is taxed when cash is received, but for financial purposes, it is recognized when earned

Which of the following results in a Deferred Tax Asset (DTA)?

A company estimates warranty costs and records the expense before paying for actual repairs

If Diluted EPS > Basic EPS

the conversion is antidilutive and should be excluded.

If Diluted EPS < Basic EPS

Include it, (It’s dilutive, as expected)

Convertible debt is

NOT always included in diluted EPS.