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标题: Financial Reporting and Analysis 【Reading 31】Sample [打印本页]
作者: karoliukas    时间: 2012-3-27 14:46     标题: [2012 L1] Financial Reporting and Analysis 【Session 9 - Reading 31】Sample

Which of the following statements is CORRECT? Income tax expense:
A)
is the amount of taxes due to the government.
B)
is the reported net of deferred tax assets and liabilities.
C)
includes taxes payable and deferred income tax expense.


Income tax expense is defined as expense resulting from current period pretax income. It includes taxes payable and deferred income tax expense. Taxes payable are the amount of taxes due the government.
作者: karoliukas    时间: 2012-3-27 14:46

Which of the following statements about tax deferrals is NOT correct?
A)
A deferred tax liability is expected to result in future cash outflow.
B)
Income tax paid can include payments or refunds for other years.
C)
Taxes payable are determined by pretax income and the tax rate.


Taxes payable are the taxes due to the government and are determined by taxable income and the tax rate. Note that pretax income is income before tax expense and is used for financial reporting. Taxable income is the income based upon IRS rules that determines taxes due and is used for tax reporting.
作者: karoliukas    时间: 2012-3-27 14:46

The difference between income tax expense and taxes payable is a:
A)
deferred income tax expense.
B)
deferred tax liability.
C)
timing difference.


Taxes payable is defined as the taxes due to the government as determined by taxable income and the tax rate, while income tax expense is the amount actually recognized on the income statement. Deferred income tax expense is defined as the difference in income tax expense and taxes payable. Each individual deferred item is expected to be paid (or recovered) in future years.
作者: karoliukas    时间: 2012-3-27 14:46

A tax loss carryforward is best described as the:
A)
net taxable loss that can be used to reduce taxable income in the future.
B)
net taxable loss that can be used to refund paid taxes from the previous year.
C)
difference of deferred tax liabilities and deferred tax assets.


A tax loss carryforward is the net taxable loss that can be used to reduce taxable income in the future.
作者: karoliukas    时间: 2012-3-27 14:47

If a firm uses accelerated depreciation for tax purposes and straight-line depreciation for financial reporting, which of the following results is least likely?
A)
Income tax expense will be greater than taxes payable.
B)
A permanent difference will result between tax and financial reporting.
C)
A temporary difference will result between tax and financial reporting.


A permanent difference between tax and financial reporting is a difference that is expected to not reverse itself. Under normal circumstances, the effects of the different depreciation methods will reverse.
作者: karoliukas    时间: 2012-3-27 14:47

Which of the following best describes valuation allowance? Valuation allowance is a reserve:
A)
created when deferred tax assets are greater than deferred tax liabilities.
B)
against deferred tax assets based on the likelihood that those assets will not be realized.
C)
against deferred tax liabilities based on the likelihood that those liabilities will be paid.


Valuation allowance is a reserve against deferred tax assets based on the likelihood that those assets will not be realized. Deferred tax assets reflect the difference in tax expense and taxes payable that are expected to be recovered from future operations.
作者: karoliukas    时间: 2012-3-27 14:48

If timing differences that give rise to a deferred tax liability are not expected to reverse then the deferred tax:
A)
should be considered an increase in equity.
B)
must be reduced by a valuation allowance.
C)
should be considered an asset or liability.


If deferred tax liabilities are expected to reverse in the future, then they should be classified as liabilities.  If, however, they are not expected to reverse in the future, then they should be classified as equity.
作者: karoliukas    时间: 2012-3-27 14:48

Which of the following statements regarding deferred taxes is NOT correct?
A)
If deferred tax liabilities are not included in equity, debt-to-equity ratio will be reduced.
B)
Only those components of deferred tax liabilities that are likely to reverse should be considered a liability.
C)
If deferred taxes are not expected to reverse in the future then they should be classified as equity.


When deferred tax liabilities are included in equity, it will reduce the debt-to-equity ratio (by increasing the denominator), in some cases considerably.
作者: karoliukas    时间: 2012-3-27 14:48

When analyzing a company's financial leverage, deferred tax liabilities are best classified as:
A)
a liability.
B)
neither as a liability, nor as equity.
C)
a liability or equity, depending on the company's particular situation.


Depends on the "performance" of the timing difference.
作者: Kingpin804    时间: 2012-3-27 14:49

For analytical purposes, if a deferred tax liability is expected to not be reversed, it should be treated as a(n):
A)
immaterial amount and ignored.
B)
liability.
C)
an addition to equity.


If deferred tax liabilities are expected to never reverse, they should be treated as equity for analytical purposes. This situation usually arises because of growth in capital expenditures.
作者: Kingpin804    时间: 2012-3-27 14:50

Which of the following financial ratios is least likely to be affected by classification of deferred taxes as a liability or equity?
A)
Return on assets (ROA).
B)
Return on equity (ROE).
C)
Debt-to-total assets.


The ROA will not be affected by the classification of the deferred taxes. The total assets will remain the same regardless of whether the deferred taxes are classified as a liability or equity.
作者: Kingpin804    时间: 2012-3-27 14:50

Which of the following factors will NOT impact the classification of deferred tax liabilities?
A)
Present value of the future payments.
B)
Growth of the firm.
C)
Changes in firm operations.


The present value of the future payments will not impact the classification of deferred tax liabilities. Growth of the firm and the firm’s operations can each have an impact on classification of deferred tax liabilities. These can result in non-payment of deferred taxes even if they are reversed.
作者: Kingpin804    时间: 2012-3-27 14:50

For purposes of financial analysis, an analyst should:
A)
determine the treatment of deferred tax liabilities on a case-by-case basis.
B)
always consider deferred tax liabilities as stockholder's equity.
C)
always consider deferred tax liabilities as a liability.


For financial analysis, an analyst must decide on the appropriate treatment of deferred taxes on a case-by-case basis. These can be classified as liabilities or stockholder’s equity, depending on various factors. Sometimes, deferred taxes are just ignored altogether.
作者: Kingpin804    时间: 2012-3-27 14:50

At the end of 20X8, Martin Inc. estimates that $26,000 of warranty repairs will be required in the future on goods already sold. For tax purposes, warranty expense is not deductible until the work is actually performed. The firm believes that the warranty work will be required over the next two years. The tax base of the warranty liability at the end of 20X8 is:
A)
zero.
B)
$13,000.
C)
$26,000.


The carrying value of the warranty liability is $26,000 (the same amount is recorded as a liability on the balance sheet and as an expense on the income statement). The tax base is equal to the carrying value less any amounts deductible in the future. Therefore, the tax base is $0 ($26,000 − $26,000) since the warranty expense will be deductible when the work is performed next year.
作者: Kingpin804    时间: 2012-3-27 14:51

In 20X8, Oliver Ltd. received $80,000 cash from a customer for goods that it could not deliver until the next year and established a liability for unearned revenue. Oliver reports under U.S. GAAP, faces a 40% tax rate, and is located in a tax jurisdiction where unearned revenue is taxed as received. On their balance sheet for 20X8, what change in deferred tax should Oliver record as a result of this transaction?
A)
A deferred tax asset of $32,000.
B)
A deferred tax liability of $32,000.
C)
There is no effect on deferred tax items from this transaction.


Oliver has paid tax on the $80,000 revenue in 20X8, but has not recorded the revenue on it for financial statement purposes. This results in a temporary difference of $32,000, which is a deferred tax asset. The tax asset will be realized when the company recognizes the revenue on its financial statements in the subsequent period.
作者: Kingpin804    时间: 2012-3-27 14:51

Alter Inc. determines that it has $35,000 of accounts receivable outstanding at the end of 20X8. Based on past experience, it recognizes an allowance for bad debt equal to 10% of its credit sales. The tax base of Alter’s accounts receivable at the end of 20X8 is closest to:
A)
$31,500.
B)
$3,500.
C)
$35,000.


For tax purposes, bad debt expense cannot be deducted until the receivables are deemed worthless. Therefore, the tax base is $35,000 since no bad debt expense has been deducted on the tax return. Note that the carrying value would be $31,500 since bad debt expense is reflected on the income statement.
作者: Kingpin804    时间: 2012-3-27 14:51

A firm buys an asset with an estimated useful life of five years for $100,000 at the beginning of the year. The firm will depreciate the asset on a straight-line basis with no salvage value on its financial statements and will use double declining balance depreciation for tax. The tax basis for this asset at the end of the first year is closest to:
A)
$60,000.
B)
$80,000.
C)
$40,000.


For tax, the asset’s basis is reduced by the DDB depreciation (2/5 × 100,000 = 40,000) from $100,000 to $60,000.
作者: Kingpin804    时间: 2012-3-27 14:52

Nespa, Inc., has a deferred tax liability on its balance sheet in the amount of $25 million. A change in tax laws has increased future tax rates for Nespa. The impact of this increase in tax rate will be:
A)
a decrease in deferred tax liability and a decrease in tax expense.
B)
an increase in deferred tax liability and an increase in tax expense.
C)
a decrease in deferred tax liability and an increase in tax expense.


An increase in tax rates will increase future deferred tax liability, and the impact of the increase in liability will be reflected in the income statement of the year in which the tax rate change is effected.
作者: Kingpin804    时间: 2012-3-27 14:52

On its financial statements for the year ended December 31, Jackson, Inc. listed $2,000,000 in post retirement benefits expense. Jackson, Inc. contributed $200,000 of the expense to its retirement plan during the year. Tax law recognizes cash contributions to a pension account as tax deductible, but not expense accruals. Jackson’s tax rate is 40%.
For the year ended December 31, Jackson, Inc. should show, based on the above, an increase in its deferred tax:
A)
asset account of $720,000.
B)
liability account of $720,000.
C)
liability account of $80,000.


Jackson’s post-retirement benefits expense will decrease income tax expense by $2,000,000 × 0.40 = $800,000. The cash contribution will decrease income taxes payable by $200,000 × 0.40 = $80,000. Because taxes payable will exceed income tax expense, the difference of $800,000 − $80,000 = $720,000 is an increase in the deferred tax asset account.
作者: Kingpin804    时间: 2012-3-27 14:52

Corcoran Corp acquired an asset on 1 January 2004, for $500,000. For financial reporting, Corcoran will depreciate the asset using the straight-line method over a 10-year period with no salvage value. For tax purposes the asset will be depreciated straight line for five years and Corcoran’s effective tax rate is 30%. Corcoran’s deferred tax liability for 2004 will:
A)
decrease by $50,000.
B)
decrease by $15,000.
C)
increase by $15,000.


Straight-line depreciation per financial reports = 500,000 / 10 = $50,000
Tax depreciation = 500,000 / 5 = $100,000
Temporary difference = 100,000 − 50,000 = $50,000
Deferred tax liability will increase by $50,000 × 30% = $15,000
作者: Kingpin804    时间: 2012-3-27 14:53

A company purchased a new pizza oven directly from Italy for $12,676. It will work for 5 years and has no salvage value. The tax rate is 41%, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35% in years 1 and 2, and 30% in year 3. For purposes of this exercise ignore all expenses other than depreciation.What is the net income and depreciation expense for year one for financial reporting purposes?
Net IncomeDepreciation Expense
A)
$2,748$2,535
B)
$2,535$3,169
C)
$4,657$2,748


Net income in year 1 for financial reporting purposes will be $2,748 = [($7,192 − $2,535)(1 − 0.41)]
The annual depreciation expense on financial statements will be $2,535 = ($12,676 / 5 years)
作者: Kingpin804    时间: 2012-3-27 14:53

Kruger Associates uses an accrual basis for financial reporting purposes and cash basis for tax purposes. Cash collections from customers are $476,000, and accrued revenue is only $376,000. Assume expenses at 50% in both cases (i.e., $238,000 on cash basis and $188,000 on accrual basis), and a tax rate of 34%. What is the deferred tax asset or liability? A deferred tax:
A)
asset of $48,960.
B)
liability of $17,000.
C)
asset of $17,000.


Since taxable income ($238,000) exceeds pretax income ($188,000), Kruger will have a deferred tax asset of $17,000 [($238,000 − $188,000)(0.34)].
作者: Kingpin804    时间: 2012-3-27 14:53

Unit Technologies uses accrual basis for financial reporting purposes and cash accounting for tax purposes. So far this year, Unit Technologies has recorded $195,000 in revenue for financial reporting purposes, but, on a cash basis, revenue was only $131,000. Assume expenses at 50 percent in both cases (i.e., $ 97,500 on accrual basis and $ 65,500 on cash basis), and a tax rate of 34%. What is the deferred tax liability or asset? A deferred tax:
A)
liability of $16,320.
B)
liability of $10,880.
C)
asset of $10,880.


Since pretax income ($97,500) exceeds the taxable income ($65,500), United Technologies will have a deferred tax liability of $10,880 = [( $97,500 − $65,500)(0.34)]
作者: Kingpin804    时间: 2012-3-27 14:54

This year, Blue Horizon has recorded $390,000 in revenue for financial reporting purposes, but, on a cash basis, revenue was only $262,000. Assume expenses at 50% in both cases (i.e., $195,000 on accrual basis and $131,000 on cash basis), and a tax rate of 34%. What is the deferred tax liability or asset? A deferred tax:
A)
liability of $21,760.
B)
liability of $16,320.
C)
asset of $21,760.


Since pretax income ($195,000) exceeds the taxable income ($131,000), Blue Horizon will have a deferred tax liability of $21,760 [($195,000 − $131,000)(0.34)].
作者: Kingpin804    时间: 2012-3-27 14:59

Camphor Associates uses accrual basis for financial reporting purposes and cash basis for tax purposes. Cash collections from customers is $238,000, and accrued revenue is only $188,000. Assume expenses at 50% in both cases (i.e., $119,000 on cash basis and $94,000 on accrual basis), and a tax rate of 34%. What is the deferred tax asset/liability in this case? A deferred tax:
A)
asset of $48,960.
B)
liability of $8,500.
C)
asset of $8,500.


Since taxable income ($119,000) exceeds pretax income ($94,000), Camphor will have a deferred tax asset of $8,500 = [($119,000 − $94,000)(0.34)].
作者: Kingpin804    时间: 2012-3-27 14:59

A firm purchased a piece of equipment for $6,000 with the following information provided:
Calculate the incremental income tax expense for financial reporting for years 1 and 2.
Year 1Year 2
A)
$3,300$4,100
B)
$3,900$3,900
C)
$600-$200


Using SL:
Yr. 1Yr. 2
Revenue15,00015,000
Dep.2,0002,000
Pretax income13,00013,000
Tax Expense3,9003,900
作者: Kingpin804    时间: 2012-3-27 14:59

Laser Tech has net temporary differences between tax and book income resulting in a deferred tax liability of $30.6 million. According to U.S. GAAP, an increase in the tax rate would have what impact on deferred taxes and net income, respectively:
Deferred TaxesNet Income
A)
IncreaseDecrease
B)
IncreaseNo effect
C)
No effectDecrease


If tax rates rise then deferred tax liabilities will also rise.  The increase in deferred tax liabilities will increase the current tax expense, and if expenses are increasing the net income will decrease.
作者: Kingpin804    时间: 2012-3-27 15:00

A dance club purchased new sound equipment for $25,352. It will work for 5 years and has no salvage value. Their tax rate is 41%, and their annual revenues are constant at $14,384. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35% in years 1 and 2 and 30% in Year 3. For purposes of this exercise ignore all expenses other than depreciation.Assume that the tax rate changes for years 4 and 5 from 41% to 31%. What will be the deferred tax liability as of the end of year three?
A)
$1,039.
B)
$2,948.
C)
$3,144.

Straight-line depreciation = $25,352 / 5 = $5,070. Income using straight-line depreciation = $14,384 − $5,070 = $9,314. Accelerated depreciation (years 1 and 2) = 0.35($25,352) = $8,873. Income (years 1 and 2) = $14,384 − $8,873 = $5,511. Accelerated depreciation (year 3) = 0.3($25,352) = $7,606. Income (year 3) = $14,384 − $7,606 = $6,778. Deferred tax liability at the end of year three, after the change in the expected tax rate, will be $3,144:
DTL for year 1 = $1,178.93 = [($9,314 − $5,511)(0.31)].
DTL for year 2 = $1,178.93 = [($9,314 − $5,511)(0.31)].
DTL for year 3 = $786.16 = [($9,314 − $6,778)(0.31)]
$1,178.93 + $1,178.93 + $786.16 = $3,144
Because the tax rate changes for years 4 and 5 from 41% to 31%, net income will have to be adjusted for financial reporting purposes in year three. What is the amount of this adjustment?
A)
$1,030.
B)
$747.
C)
$1,014.


The deferred tax liability will decrease by $1,014 = ($4,158 − $3,144) due to the new lower tax rate. An adjustment of $1,014 in tax expense will result in an increase in net income by the same amount of $1,014.
Deferred tax liability at the end of year 3 with tax rate of 41% = $4,158.
Deferred tax liability at the end of year 3 with tax rate of 31% = $3,144.
作者: Kingpin804    时间: 2012-3-27 15:01

An analyst gathered the following data for Alice Company.What is the income tax expense that Alice should report on its income statement for the year ended December 31, 2002?
A)
$160,000.
B)
$140,000.
C)
$132,000.


$400,000 – 50,000 = $350,000. $350,000 × 40% = $140,000
Based on the information provided, which of the following is most accurate with respect to deferred tax during 2002? Deferred tax:
A)
liability will increase by $4,000.
B)
will remain unchanged.
C)
asset will increase by $4,000.


Since only $10,000 of the rent expense will be allowed per tax returns, a deferred tax asset of $4,000 will result ($10,000 × 40%).
All else equal, when a company issues bonds at a premium, the debt/equity ratio will show:
A)
an increasing trend over the life of the bond.
B)
a decreasing trend over the life of the bond.
C)
stable trend over the life of the bond.


Net book value of debt decreases from amortization of the premium, while stockholders’ equity increases (due to increasing earnings). This decreases debt/equity ratio over the life of the bond.
作者: Kingpin804    时间: 2012-3-27 15:01

Indata Company sold a specially manufactured item for $5,000,000 on December 31, 20X6. The item was sold on an installment sale basis, with $1,000,000 paid on the date of the sale and $4,000,000 to be paid in four annual installments of $1,000,000 plus interest at the market rate of 6%. Indata’s tax rate is 40% and its costs to construct the item were $2,500,000. Indata recognizes the entire amount of the sale as income on the date the sale is made for accounting purposes, but not until cash is received for tax purposes.On its balance sheet dated December 31, 20X6, Indata will, as a result of the transaction described above, increase its deferred tax:
A)
asset by $800,000.
B)
liability by $800,000.
C)
liability by $200,000.


Accounting profit from the installment sale was $5,000,000 - $2,500,000 = $2,500,000. Income tax expense is calculated based on 40% of accounting profit, so tax expense from the transaction is $2,500,000 × 0.40 = $1,000,000. Revenue reported on the tax form is $1,000,000 and the year's costs for tax purposes are $2,500,000 × ($1,000,000 / $5,000,000) = $500,000. Income taxes payable, as of December 31, 2006, were ($1,000,000 – $500,000) × 0.40 = $200,000. The excess of income tax expense over income taxes payable is a deferred tax liability of $1,000,000 - $200,000 = $800,000.
作者: Kingpin804    时间: 2012-3-27 15:02

A dance club purchased new sound equipment for $25,352. It will work for 5 years and has no salvage value. Their tax rate is 41%, and their annual revenues are constant at $14,384. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35% in years 1 and 2 and 30% in Year 3. For purposes of this exercise ignore all expenses other than depreciation.What is the tax payable for year one?
A)
$2,259.
B)
$779.
C)
$1,909.


Tax payable for year one will be $2,259 = [{$14,384 − ($25,352 × 0.35)} × 0.41].

What is the deferred tax liability as of the end of year one?
A)
$1,559.
B)
$1,909.
C)
$1,129.


The deferred tax liability for year 1 will be $780.
Pretax Income = $9,314 ( $14,384 − $5,070).
Taxable Income = $5,511 ($14,384 − $8,873).
Deferred Tax liability = $1,559 [($9,314 − $5,511)(0.41)].

What is the deferred tax liability as of the end of year three?
A)
$780.
B)
$1,029.
C)
$4,158.


The deferred tax liability at the end of year 3 will be $4,158 ($1,559 + $1,559 + $1,040).
Pretax Income = $9,314 = ( $14,384 − $5,070).
Taxable Income = $6,778 = [$14,384 − ($25,352 × 0.30)].
Deferred Tax liability for year 3 = $1,040 = [($9,314 − $6,778)(0.41)].
Deferred Tax liability for year 1 = $1,559 = [($9,314 − $5,511)(0.41)].
Deferred Tax liability for year 2 = $1,559 = [($9,314 − $5,511)(0.41)].
作者: Kingpin804    时间: 2012-3-27 15:05

Graphics, Inc. has a deferred tax asset of $4,000,000 on its books. As of December 31, it became more likely than not that $2,000,000 of the asset’s value may never be realized because of the uncertainty of future income. Graphics, Inc. should:
A)
not make any adjustments until it is certain that the tax benefits will not be realized.
B)
reduce the asset by establishing a valuation allowance of $2,000,000 against the asset.
C)
reverse the asset account permanently by $2,000,000.


If it becomes more likely than not that deferred tax assets will not be fully realized, a valuation allowance that reduces the asset and also reduces income from continuing operations should be established.
作者: Kingpin804    时间: 2012-3-27 15:05

An analyst gathered the following information about a company:
What is the company's tax expense?
A)
$22,000.
B)
$24,000.
C)
$10,000.


Deferred tax liability = (120,000 − 100,000) × 0.1 = 2,000
Tax expense = current tax rate × taxable income + deferred tax liability
0.2 × 100,000 + 2,000 = 22,000
作者: Kingpin804    时间: 2012-3-27 15:06

A company purchased a new pizza oven directly from Italy for $12,676. It will work for 5 years and has no salvage value. The tax rate is 41%, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35% in years 1 and 2, and 30% in year 3. For purposes of this exercise ignore all expenses other than depreciation. What is the tax payable for year one?
A)
$1,909.
B)
$1,130.
C)
$779.


Tax payable for year 1 will be $1,130 = [{$7,192 − ($12,676 × 0.35)} × 0.41]
What is the deferred tax liability as of the end of year one?
A)
$1,129.
B)
$1,909
C)
$780.

The deferred tax liability for year 1 will be $780.
Pretax Income = $4,657 = ( $7,192 − $2,535)
Taxable Income = $2,755 = ($7,192 − $4,437)
Deferred Tax liability = $780 = [($4,657 − $2,755)(0.41)]

Alternative solution:
The difference in depreciation at the end of year one is $12,676 × (0.35 − 0.20) = $1901.
Deferred tax liability = difference in depreciation × tax rate = $1901 × 0.41 = $780.

What is the deferred tax liability as of the end of year three?
A)
$1,029.
B)
$2,079.
C)
$780.

The deferred tax liability at the end of year 3 will be $2,079 = ($780 + $780 + $519).
Pretax Income = $4,657( $7,192 − $2,535)
Taxable Income = $3,389[$7,192 − ($12,676 × 0.30)]
Deferred Tax liability for year 3 = $519[($4,657 − $3,389)(0.41)]

Deferred Tax liability for year 1 = $780[($4,657 − $2,755)(0.41)]
Deferred Tax liability for year 2 = $780[($4,657 − $2,755)(0.41)]
Alternative solution:
For tax purposes the machine is 100% depreciated out at the end of year three, while for GAAP it is only 60% depreciated.
The difference in depreciation is $12,676 × (1.00 − 0.60) = $5070.
Deferred tax liability = difference in depreciation × tax rate = $5070 × 0.41 = $2079.
作者: Kingpin804    时间: 2012-3-27 15:06

For the year ended 31 December 2004, Pick Co's pretax financial statement income was $400,000 and its taxable income was $300,000. The difference is due to the following:
Interest on tax-exempt municipal bonds$140,000
Premium expense on key person life insurance$(40,000)
Total$100,000

Pick's statutory income tax rate is 30 percent. In its 2004 income statement, what amount should Pick report as current provision for tax payable?
A)
$102,000.
B)
$90,000.
C)
$120,000.


According to SFAS 109, Current provision = statutory rate × taxable income
30% = Taxes Payable / $300,000
= 0.30 × $300,000
= $90,000
作者: Kingpin804    时间: 2012-3-27 15:07

Selected information from Kentucky Corp.’s financial statements for the year ended December 31 was as follows (in $ millions):

Property, Plant & Equip.

10


Deferred Tax Liability

0.6

Accumulated Depreciation

(4)





The balances were all associated with a single asset.  The asset was permanently impaired and has a present value of future cash flows of $4 million.  After Kentucky writes down the asset, Kentucky’s tax accounts will be affected as follows (the tax rate is 40%):
A)
taxes payable will decrease $800,000.
B)
deferred tax liability will be eliminated and deferred tax assets will increase $200,000.
C)
deferred tax liability will be eliminated and deferred tax assets will increase $1.4 million.


A permanently impaired asset must be written down to the present value of its future cash flows. The asset’s carrying value of ($10 − $4 =) $6 million must be reduced by $2 million to $4 million. An impaired value write-down reduces net income for accounting purposes, but not for tax purposes until the asset is sold or disposed of, so taxes payable do not decrease. At a 40% tax rate, the eventual writedown for tax purposes of $2 million will cause $800,000 of changes in deferred tax items. The $600,000 deferred tax liability associated with this asset is eliminated and a deferred tax asset of $200,000 is established.
作者: Kingpin804    时间: 2012-3-27 15:07

An analyst has gathered the following tax information:
Year 1 Year 2
Pretax Income $60,000 $60,000
Taxable Income $50,000 $65,000

The current tax rate is 40%. Assume the tax rate is reduced to 30% and the change is enacted at the beginning of Year 2.In year 1, what are the taxes payable and what is the deferred tax liability?
Taxes PayableDeferred Tax Liability
A)
$24,000$3,000
B)
$20,000$1,500
C)
$20,000$3,000


Taxes Payable = Taxable Income × Current Tax Rate = $50,000 × 40% = $20,000. The taxes payable will be based on the current tax rate of 40%.

Deferred Tax Liability = (Pretax Income − Taxable Income) × 30% = ($60,000 − 50,000) × 30% = $3,000.

SFAS 109 requires adjustments to deferred tax assets and liabilities to reflect the impact of a change in tax rates or tax laws.
Total income tax expense for Year 1 is:
A)
$23,000.
B)
$17,000.
C)
$24,000.


Total Income Tax Expense = Taxes Payable − Deferred Tax Asset + Deferred Tax Liability = $20,000 − 0 + 3,000 = $23,000.
作者: Kingpin804    时间: 2012-3-27 15:08

If a firm overestimates its warranty expenses, which of the following results is least likely?
A)
Income tax expense will be greater than taxes payable.
B)
A deferred tax asset will result.
C)
A timing difference will result between tax and financial reporting.


Income tax expense will be less than taxes payable because the firm can only recognize warranty expense as they occur. Thus, if the warranty expenses are overestimated on the financial statements income tax expense will be less that taxes payable.
作者: Kingpin804    时间: 2012-3-27 15:08

A company purchased a new pizza oven directly from Italy for $12,675. It will work for 5 years and has no salvage value. The tax rate is 41%, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35% in years 1 and 2, and 30% in year 3. For purposes of this exercise ignore all expenses other than depreciation.
Assume the tax rate for years 4 and 5 changed from 41% to 31%. What will be the deferred tax liability as of the end of year 3 and the resulting adjustment to net income in year 3 for financial reporting purposes due to the change in the tax rate?
Deferred Tax LiabilityNet Income
A)
$1,572$747
B)
$1,039$507
C)
$1,572$507


Straight-line depreciation is $12,675 / 5 = $2,535.
Financial statement income is $7,192 − $2,535 = $4,657.
Accelerated depreciation is $12,675(0.35) = $4,436 in years 1 and 2 and $12,675(0.3) = $3,803 in year 3.
Taxable income is $7,192 − $4,436 = $2,756 in years 1 and 2 and $7,192 − $3,803 = $3,389 in year 3.
At the old tax rate of 41%:
Deferred Tax liability for year 1 = $779.41 [($4,657 − $2,756)(0.41)]
Deferred Tax liability for year 2 = $779.41 [($4,657 − $2,756)(0.41)]
Deferred Tax liability for year 3 = $519.88 [($4,657 − $3,389)(0.41)]
Deferred tax liability at the end of year 3, before the change in tax rate, is $2,079 = ($779.41 + $779.41 + $519.88)
At the new tax rate of 31%:
Deferred Tax liability for year 1 = $589.31 [($4,657 − $2,756)(0.31)]
Deferred Tax liability for year 2 = $589.31 [($4,657 − $2,756)(0.31)]
Deferred Tax liability for year 3 = $393.08 [($4,657 − $3,389)(0.31)]
Deferred tax liability at the end of year 3, after the change in tax rate, will be $1,572 = ($589.31 + $589.31 + $393.08)
The deferred tax liability will decrease by $507 = ($2,079 − $1,572) due to the new lower tax rate. An adjustment of $507 in tax expense will result in increase in net income by the same amount $507.
Another way of answering this question is as follows:
The deferred tax liability is the cost of the oven multiplied by the difference in the amount of depreciation at the end of year 3 between accelerated depreciation (100%) and straight line (60%) depreciation methods multiplied by the tax rate ((12,675 × 0.4) × 0.31 = $1,572).
The change in net income due to the change in tax rates is the cost of the oven multiplied by the difference in the amount of depreciation at the end of year 3 multiplied by the difference in tax rates (12,675 × 0.4 × (0.41 − 0.31) = 507).
作者: mouse123    时间: 2012-3-27 15:09

Habel Inc. owns equipment with a tax base of $400,000 and a carrying value of $600,000. Habel also has a tax loss carryforward of $200,000 that is expected to be utilized in the foreseeable future. Deferred tax items on the balance sheet are valued based on a tax rate of 30%. If the tax rate is expected to increase to 35%, the adjustments to the value of deferred tax items will most likely cause Habel’s total liabilities-to-equity ratio to:
A)
increase.
B)
decrease.
C)
remain unchanged.


The $200,000 difference between the tax base and the carrying value of the equipment gives rise to a taxable temporary difference that leads to a deferred tax liability of $60,000 ($200,000 × 30%). The tax loss carryforward of $200,000 leads to a deferred tax asset of $60,000 ($200,000 × 30%).
The increase in the tax rate from 30% to 35% will increase both the DTL and the DTA by $10,000 ($200,000 × 5%). Equity is unchanged. Therefore, the total liabilities-to-equity ratio will increase because of the increase in the deferred tax liability.
作者: mouse123    时间: 2012-3-27 15:09

Christophe Inc. is an electronics manufacturing firm. It owns equipment with a tax basis of $800,000 and a carrying value of $600,000 as the result an impairment charge. It also has a tax loss carryforward of $300,000 that is expected to be utilized within the next year or two. The tax rate on these items is 40% but the tax rate is expected to decrease to 35% for the foreseeable future. Which of the following amounts is closest to the net effect of the change in tax rate on the income statement?
A)
Increase in deferred tax expense of $5,000.
B)
Decrease in deferred tax expense of $5,000.
C)
Increase in deferred tax expense of $25,000.


The $200,000 difference between the tax base and the carrying value of the equipment gives rise to a deductible temporary difference that leads to a deferred tax asset (DTA) of $80,000 ($200,000 × 40%). The tax loss carryforward of $300,000 also leads to a DTA but for $120,000 ($300,000 × 40%).
The decrease in the tax rate from 40% to 35% will reduce the DTA of the equipment by $10,000 ($200,000 × 5%). It will reduce the DTA of the tax loss carryforward by $15,000 ($300,000 × 5%). In total, the DTA will decrease by $25,000. Therefore, the balancing entry will be to increase deferred tax expense by $25,000.
作者: mouse123    时间: 2012-3-27 15:10

Firm 1 has a deferred tax liability and Firm 2 has a deferred tax asset. With respect to the taxes payable for each firm when these deferred tax items reverse, a decrease in the firms’ tax rates will lead to:
Firm 1Firm 2
A)
Lower taxes payableLower taxes payable
B)
Higher taxes payableLower taxes payable
C)
Lower taxes payableHigher taxes payable


When the expected tax rate decreases, income will be taxed at a lower rate when a DTL reverses, resulting in lower (cash) taxes payable for Firm 1. In contrast, expenses that will be tax deductible when the DTA reverses will provide less of a benefit when the tax rate is lower, resulting in higher taxes payable for Firm 2.
作者: mouse123    时间: 2012-3-27 15:10

Enduring Corp. operates in a country where net income from sales of goods are taxed at 40%, net gains from sales of investments are taxed at 20%, and net gains from sales of used equipment are exempt from tax.  Installment sale revenues are taxed upon receipt.
For the year ended December 31, 2004, Enduring recorded the following before taxes were considered:
On its financial statements for the year ended December 31, 2004, Enduring should apply an effective tax rate of:
A)
22.86% and increase its deferred tax liability by $1,000,000.
B)
22.86% and increase its deferred tax asset by $1,000,000.
C)
26.67% and increase its deferred tax liability by $1,000,000.


Total taxes eventually due on 2004 activities were (($2,000,000 × 0.40) + ($4,000,000 × 0.20) =) $1,600,000. Permanent differences are adjusted in the effective tax rate, which is ($1,600,000 / $7,000,000 =) 22.86%. Of the $1,600,000 taxes due, (($2,000,000 × 0.50 × 0.40) + ($4,000,000 × 0.25 × 0.20) =) $600,000 were paid in 2004 and $1,000,000 ($1,600,000 − $600,000) is added to deferred tax liability.
作者: mouse123    时间: 2012-3-27 15:10

Which of the following statements about deferred taxes is least accurate? Deferred taxes:
A)
arise primarily due to differences between GAAP and IRS code.
B)
may never “reverse” in the case of companies that are growing.
C)
can relate to either permanent or temporary differences.


Permanent difference will not result in deferred taxes since they are not expected to reverse in the future.
作者: mouse123    时间: 2012-3-27 15:11

Which of the following statements regarding differences in taxable and pretax income is CORRECT? Differences in taxable and pretax income that:
A)
result in deferred taxes are called temporary differences.
B)
increase or reduce the effective tax rate are called temporary differences.
C)
are not reversed for five or more years are called permanent differences.


The permanent differences are never reversed, while there is no time limit on temporary differences to reverse. Permanent differences never result in tax deferrals; temporary differences always result in deferred tax assets or liabilities.
作者: mouse123    时间: 2012-3-27 15:11

Permanent differences in taxable and pretax income:
A)
are considered as changes in the effective tax rate.
B)
are reported on both tax returns and financial statements.
C)
can be deferred in some cases.


The permanent differences are never deferred but are considered increases or decreases in the effective tax rate. If the only difference between the taxable and pretax incomes were a permanent difference, then tax expense would simply be taxes payable.
作者: mouse123    时间: 2012-3-27 15:11

Which of the following situations will most likely require a company to record a valuation allowance on its balance sheet?
A)
To report depreciation, a firm uses the double-declining balance method for tax purposes and the straight-line method for financial reporting purposes.
B)
A firm is unlikely to have future taxable income that would enable it to take advantage of deferred tax assets.
C)
A firm has differences between taxable and pretax income that are never expected to reverse.


A valuation allowance is a contra account (offset) against deferred tax assets that reflects the likelihood that the deferred tax assets will never be realized. If a firm is unlikely to have future taxable income, it would be unlikely to ever use its deferred tax assets, and therefore must record a valuation allowance.
作者: mouse123    时间: 2012-3-27 15:12

Which of the following statements best justifies analyst scrutiny of valuation allowances?
A)
If differences in taxable and pretax incomes are never expected to reverse, a company’s equity may be understated.
B)
Increases in valuation allowances may be a signal that management expects earnings to improve in the future.
C)
Changes in valuation allowances can be used to manage reported net income.


A valuation allowance is a contra account (offset) against deferred tax assets that reflects the likelihood that the deferred tax assets will never be realized. Changes in the valuation allowance have a direct impact on reported income. Because management has discretion with regard to the amount and timing of a valuation allowance, changes in the valuation allowance give management significant opportunity to manage earnings.
作者: mouse123    时间: 2012-3-27 15:12

Which of the following statements best describes the impact of a valuation allowance on the financial statements? A valuation allowance:
A)
reduces reported income, increases liabilities, and reduces equity.
B)
reduces reported income, reduces assets, and reduces equity.
C)
increases reported income, reduces assets, and reduces equity.


A valuation allowance is a contra account (offset) against deferred tax assets that reflects the likelihood that the deferred tax assets will never be realized. The establishment of a valuation allowance reduces reported income, offsets (reduces) assets, and reduces equity.
作者: mouse123    时间: 2012-3-27 15:12

Luigi Medici, a level II candidate for the CFA charter, was asked to assist in the analysis of the effective tax rate for Monster Software Inc. The following comments were left with Medici by his superior, Greg Becker.
Becker is:
A)
correct in regard to statements 2 and 4.
B)
incorrect in regard to statements 2 and 3.
C)
correct in regard to statements 3 and 4.


The correct statements are 2 and 4. Statement 1 is incorrect because the analysis of the effective tax rate typically requires that the analyst, at a minimum, use the information in the management analysis and discussion (MD&A). Furthermore, it is recommended that the analyst seek additional information from the management if needed. Statement 3 is incorrect because, by definition, sporadic items are not repeated and are difficult to predict. Therefore they will complicate trend analysis and forecasting.
作者: mouse123    时间: 2012-3-27 15:13

Bandhu Jayagopal and his wife, Padmini, are the founders and current owners of the Riverview Restaurant and Lounge. They retired several years ago from the day-to-day management, however, turning it over to a nephew, Mehmood Shah. Shah has run the restaurant very profitably, but recent redevelopment of the downtown riverfront area has brought new competition to the Riverview. Jayagopal’s 25 year old grandson, Jeff Patel, thinks the restaurant can leap ahead of the competition and attract a hipper crowd by turning the lounge into a nightclub.Patel wants to incorporate a new business and lease the restaurant lounge for his nightclub, the Red Monkey. Patel has consulted a contractor who says he can do the renovations for $25,352,000. Patel estimates that the new sound system and décor would be usable for five years before fashions changed enough that it would have to be replaced, at which point it would have no salvage value.
Patel assures his grandfather and uncle that he could generate $14,384,000 in revenue every year once the renovations are complete. For their parts, Jayagopal and Shah are understandably leery of turning over the financial future of the family business to a 25 year old who wants to open a club. Since the new club would face the same 41% tax rate that the restaurant faces, Jayagopal and Shah are not sure that the cash flow from the club would be sufficient to cover the rapid depreciation of the fashionable décor. The fact that Patel also expects them to fund the new company for him doesn’t help. They say no.Patel returns to his uncle and grandfather armed with financial projections. Patel shows his hoped-for business partners that, if they use the straight-line method in reporting the club’s results, the Red Monkey will report $5,495,024 in after-tax income (ignoring expenses other than depreciation) in the first year.
Jayagopal counters that straight-line depreciation is irrelevant because for tax purposes the depreciation schedule will be accelerated to 35% per year in each of the first two years and 30% in the third year. Jayagopal points out that after-tax income for the club in the first year will be only $3,251,372 on a tax basis (again ignoring expenses other than depreciation).Shah joins Jayagopal in his objections, adding that the accelerated depreciation schedule used for tax purposes will result in a substantial deferred tax liability, reaching approximately $4,158,000 by the end of year three. Patel replies that the deferred tax liability is merely an accounting entry and the Red Monkey will never have to pay any of it since the club will reinvest in up-to-date décor in five years when the current renovations are out of fashion.
Patel adds that a change in the tax law to cut tax rates from 41% to 31% is likely in year three, and if that happens the deferred tax liability at the end of the third year will decline to $2.948 million. Jayagopal agrees about the likelihood of a tax cut, saying that such a cut in tax rates would add $1.014 million to the Red Monkey’s reported net income in year three.Jayagopal and Shah agree to fund the nightclub if the tax cut passes. What would be the Red Monkey’s projected tax payable (in millions) in year one?
A)
$1.909.
B)
$2.259.
C)
$0.779.


On a tax basis, first-year depreciation will be ($25.352 million × 0.35) = $8,873,200.
Pre-tax income will be ($14,384,000 – $8,873,200) = $5,510,800.
At a 41% tax rate, tax payable in year one would be ($5,510,800 × 0.41) = $2.259 million.

Regarding Patel’s and Jayagopal’s statements about the Red Monkey’s after-tax income in the first year, which is CORRECT?
Patel Jayagopal
A)
Incorrect Correct
B)
Correct Incorrect
C)
Correct Correct


If the Red Monkey uses straight-line depreciation in its reported results, the annual depreciation expense on financial statements will be ($25.352 million / 5 years) = $5,070,400 per year. Pre-tax income (ignoring depreciation) will be ($14,384,000 revenue − $5,070,400 depreciation) = $9,313,600. At a 41% tax rate, reported income each year will equal ((1 – 0.41) × $9,313,600) = $5,495,024, ignoring expenses other than depreciation. Patel’s statement is correct.
On a tax basis, first-year depreciation will be ($25.352 million × 0.35) = $8,873,200 and pre-tax income will be ($14,384,000 – $8,873,200) = $5,510,800, again ignoring expenses other than depreciation. At a 41% tax rate, the after-tax income of the Red Monkey will be [(1 – 0.41) × $5,510,800] = $3,251,372. Jayagopal’s statement is also correct.
Which statement about an analyst’s treatment of deferred tax assets and liabilities is most accurate?
A)
Deferred tax assets that are unlikely to be reversed should be added to equity.
B)
Deferred tax liabilities are unlikely to reverse should be discounted to present value and treated as liabilities.
C)
Deferred tax liabilities that are unlikely to reverse should be treated as equity, without discounting.


Deferred tax assets that are unlikely to be reversed should be subtracted from equity, not added to it. Deferred tax liabilities should be discounted to present value and treated as liabilities if they are likely, not unlikely, to reverse. If the deferred tax liability is unlikely to reverse, the difference between the reported value and present value is added to equity.
Regarding Patel’s and Shah’s statements about the Red Monkey’s deferred tax liability, which is CORRECT?
Patel Shah
A)
Incorrect Correct
B)
Correct Correct
C)
Incorrect Incorrect


Although it is true that the Red Monkey will be renovating the décor frequently, it will not be investing in décor as rapidly as it depreciates it for tax purposes. In years four and five, the Red Monkey will have no depreciation for tax purposes but will still be depreciating the renovations on its books, and in those years its deferred tax liabilities will become due. Deferred tax liabilities are generally deferred indefinitely only if a company invests consistently. Patel’s statement is incorrect.
In order to calculate the total deferred tax liability for year three, we can calculate the deferred tax charge in years one, two, and three and then add them.
Pre-tax income for the Red Monkey for reporting purposes every year equals ($14,384,000 revenue − $5,070,400 straight-line depreciation) = $9,313,600.
For tax purposes, pre-tax income in years one and two equals $14,384,000 revenue – ($25,352,000 × 0.35) = $8,873,200 depreciation, or $5,510,800 in net income per year. Thus the deferred tax charge in years one and two equals the difference in income of ($9,313,600 reported income − $5,510,800 taxable income) = $3,802,800 at a 41% tax rate, or ($3,802,800 × 0.41) = $1,559,148.
For tax purposes, pre-tax income in year three equals $14,384,000 revenue – ($25,352,000 × 0.30) = $7,605,600 depreciation, or $6,778,400 in net income. Thus the deferred tax charge for year three equals the difference in income of ($9,314,000 reported income − $6,778,400 taxable income) = $2,535,600 at a 41% tax rate, or ($2,535,600 × 0.41) = $1,039,596.
Thus the total deferred tax liability at the end of year 3 equals ($1.559 million + $1.559 million + $1.040 million) = $4.158 million. Shah’s statement is correct.
Alternately, we could do this more quickly by recognizing that, in year three, the renovations will be completely depreciated for tax purposes, so that taxable depreciation will have reached their full cost, $25,352,000. We also can calculate that, because the renovations are being depreciated on a straight-line basis over five years, by year three Red Monkey will have depreciated (3 years charged / 5-year asset life) = 60% of their total cost on its books. Thus, the deferred tax liability in year three will be based on the [($25,352,000)× (1 – 0.60)] = $10.141 million in cost not yet depreciated. At a 41% tax rate, the deferred taxes on the cost not yet depreciated will equal ($10.141 million × 0.41) = $4.158 million.
Note that calculating a deferred tax liability directly is often much faster than doing it year by year.

Regarding Patel’s and Jayagopal’s statements about the effect of a tax cut from 41% to 31% in year three on Red Monkey, which is CORRECT?
Patel Jayagopal
A)
Incorrect Incorrect
B)
Incorrect Correct
C)
Correct Correct


Using the information we calculated in question 4, we can recalculate the deferred tax liability for years one, two, and three using the lower tax rateeferred tax liability for years one and two equals [($9.314 − $5.511) × 0.31] = $1.179 million. Deferred tax liability for year three equals ($9.314 − $6.778) × 0.31 = $0.786 million. Thus the deferred tax liability on Red Monkey’s balance sheet at the end of year three, after the change in tax rate, will be ($1.179 million + $1.179 million + $0.786 million) = $3.144 million. Alternately, we can calculate the deferred tax liability for year three directly as ($10.141 million × 0.31) = $3.144 million. Using either approach, Patel’s statement is incorrect.
We calculated in question 4 that the deferred tax liability in year three will equal $4.158 million. Thus, Red Monkey’s deferred tax liability will decrease by ($4.158 − $3.144) = $1.014 million due to the new lower tax rate. Thus, Red Monkey will have to make an adjustment of $1.014 million in tax expense in year three, which will result in an increase in net income of $1.014 million. Jayagopal’s statement is correct.

When analyzing a firm’s reconciliation between its effective tax rate and the statutory tax rate, which of the following is least likely a potential cause for the difference between the effective rate and the statutory rate?
A)
Differential tax treatment between capital gains and operating income.
B)
Deferred taxes provided on the reinvested earnings of unconsolidated domestic affiliates.
C)
Use of accelerated depreciation for tax purposes and straight-line depreciation for reporting purposes.


Potential reasons for a difference between a firm’s statutory and effective tax rates include tax credits, differential tax treatment between capital gains and operating income, and deferred tax provisions on reinvested earnings of unconsolidated domestic affiliates. The difference in depreciation schedules for tax and reporting purposes affects the level of deferred taxes but not the tax rate at which they are calculated.
作者: mouse123    时间: 2012-3-27 15:13

All of the following factors complicate the comparability of effective tax rates across firms EXCEPT:
A)
comparisons over relatively short time horizons.
B)
changes in the statutory tax rate.
C)
volatility in the effective tax rate over the comparison period.


Comparability decreases when the comparison period is relatively short (e.g. quarters vs. years), with the presence of volatility in the effective tax rate over the comparison period, and operations in different tax jurisdictions.
作者: mouse123    时间: 2012-3-27 15:14

Differences between the effective tax rate and the statutory rate arise due to all of the following EXCEPT:
A)
non-deductible expenses.
B)
tax credits.
C)
deductible expenses.


Permanent tax differences such as tax credits, non-deductible expenses, and tax differences between capital gains and operating income give rise to differences in the effective and statutory tax rates.
作者: mouse123    时间: 2012-3-27 15:14

While evaluating the financial statements of Omega, Inc., the analyst observes that the effective tax rate is 7% less than the statutory rate. The source of this difference is determined to be a tax holiday on a manufacturing plant located in South Africa. This item is most likely to be:
A)
sporadic in nature, and the analyst should try to identify the termination date and determine if taxes will be payable at that time.
B)
sporadic in nature, but the effect is typically neutralized by higher home country taxes on the repatriated profits.
C)
continuous in nature, so the termination date is not relevant.


As the name suggests, a tax holiday is usually a temporary exemption from having to pay taxes in some tax jurisdiction. Because of the temporary nature, the key issue for the analyst is to determine when the holiday will terminate, and how the termination will affect taxes payable in the future.
作者: mouse123    时间: 2012-3-27 15:14

An analyst gathered the following information about a company:
What is the firm's reported effective tax rate?
A)
25%.
B)
5%.
C)
30%.


Reported effective tax rate = Income tax expense / pretax income
= $3,000 / $10,000
= 30%
作者: mouse123    时间: 2012-3-27 15:15

Year:200220032004
Income Statement:
Revenues after all expenses other than depreciation$200$300$400
Depreciation expense505050
Income before income taxes$150$250$350
Tax return:
Taxable income before depreciation expense$200$300$400
Depreciation expense755025
Taxable income$125$250$375

Assume an income tax rate of 40%.
The company's income tax expense for 2002 is:
A)
$50.
B)
$60.
C)
$0.


Effective tax rate = Income tax expense / pretax income
Income tax expense = Effective tax rate × pretax income
= $150(0.40)
= $60
作者: mouse123    时间: 2012-3-27 15:15

A firm purchased a piece of equipment for $6,000 with the following information provided:

Calculate taxes payable for years 1 and 2.
Year 1Year 2
A)
3,3004,100
B)
600-200
C)
3,9003,900


Using DDB:
Yr. 1Yr. 2
Revenue15,00015,000
Depreciation4,0001,333
Taxable Income11,00013,667
Taxes Payable3,3004,100

An asset with a 3-year life would have a straight line depreciation rate of 0.3333 per year. Using DDB the depreciation rate is twice this amount or 0.66667. $2,000 is the amount of depreciation left on the equipment in year 2 ($6,000 − $4,000). Therefore, the amount of depreciation in the 2nd year is (0.66667)(2,000) = $1,333
作者: mouse123    时间: 2012-3-27 15:15

Which of the following statements regarding the disclosure of deferred taxes in a company’s balance sheet is most accurate?
A)
There should be a combined disclosure of all deferred tax assets and liablities.
B)
Current deferred tax liability, current deferred tax asset, noncurrent deferred tax liability and noncurrent deferred tax asset are each disclosed separately.
C)
Current deferred tax liability and noncurrent deferred tax asset are netted, resulting in the disclosure of a net noncurrent deferred tax liability or asset.


Deferred tax assets and liabilities must be separated between current and noncurrent accounts.
作者: mouse123    时间: 2012-3-27 15:16

A tax rate that has been substantively enacted is used to determine the balance sheet values of deferred tax assets and deferred tax liabilities under:
A)
U.S. GAAP only.
B)
IFRS only.
C)
both IFRS and U.S. GAAP.


Under IFRS, a tax rate that has been enacted or substantively enacted is used to measure deferred tax items. Under U.S. GAAP, only a tax rate that has actually been enacted can be used
作者: mouse123    时间: 2012-3-27 15:16

One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that:
A)
all deferred tax assets and liabilities are classified as noncurrent under IFRS.
B)
a valuation allowance is presented only under U.S. GAAP.
C)
under IFRS deferred tax assets and liabilities are not adjusted for changes in the the firm’s actual tax rate.


Under U.S. GAAP, deferred tax assets and liabilities are classified as current or non-current according to the classification of the underlying asset or liability. Under IFRS, deferred tax assets and deferred tax liabilities are all classified as noncurrent, with footnote disclosure about the expected timing of reversals.
作者: terpsichorefan    时间: 2013-4-11 17:20

thanks for sharing



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