Reading 38: Income Taxes-LOS b 习题精选 2011, determine, purposes, company, created

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Session 9: Financial Reporting and Analysis: Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities
Reading 38: Income Taxes

LOS b: Explain how deferred tax liabilities and assets are created and the factors that determine how a company’s deferred tax liabilities and assets should be treated for the purposes of financial analysis.

 

 

If timing differences that give rise to a deferred tax liability are not expected to reverse then the deferred tax:

A) must be reduced by a valuation allowance.

B) should be considered an increase in equity.

C) should be considered an asset or liability.

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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.

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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.

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When deferred tax liabilities are included in equity, it will reduce the debt-to-equity ratio (by increasing the denominator), in some cases considerably.

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Which of the following factors will NOT impact the classification of deferred tax liabilities?

A) Growth of the firm.

B) Changes in firm operations.

C) Present value of the future payments.

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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.

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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 equity (ROE).

B) Debt-to-total assets.

C) Return on assets (ROA).

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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.

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Deferred tax liabilities might be considered neither a liability nor equity, when:

A) financial statement depreciation is inadequate.

B) some components are likely to reverse and some components will grow.

C) non-reversal is certain.

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In some cases, an analyst will not consider the deferred tax liabilities either liability or equity. This is done if non-reversal is uncertain or when financial statement depreciation is deemed inadequate and, therefore, is difficult to justify increasing stockholder’s equity.

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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.

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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.

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When analyzing a company's financial leverage, deferred tax liabilities are best classified as:

A) a liability.

B) a liability or equity, depending on the company's particular situation.

C) neither as a liability, nor as equity.

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Depends on the "performance" of the timing difference.

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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.

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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.