Reading 38: Income Taxes-LOS f 习题精选 2011, permanent, between, border, center

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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 f: Distinguish between temporary and permanent items in pre-tax financial income and taxable income.

 

 

Permanent differences in taxable and pretax income:

A) are reported on both tax returns and financial statements.

B) can be deferred in some cases.

C) are considered as changes in the effective tax rate.

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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.

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Which of the following statements regarding differences in taxable and pretax income is CORRECT? Differences in taxable and pretax income that:

A) increase or reduce the effective tax rate are called temporary differences.

B) result in deferred taxes are called temporary differences.

C) are not reversed for five or more years are called permanent differences.

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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.

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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) can relate to either permanent or temporary differences.

C) may never “reverse” in the case of companies that are growing.

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Permanent difference will not result in deferred taxes since they are not expected to reverse in the future.

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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:

• Net income from the sale of goods was $2,000,000, half was received in 2004 and half will be received in 2005.
• Net gains from the sale of investments were $4,000,000, of which 25% was received in 2004 and the balance will be received in the 3 following years.
• Net gains from the sale of equipment were $1,000,000, of which 50% was received in 2004 and 50% in 2005.

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 asset by $1,000,000.

B) 26.67% and increase its deferred tax liability by $1,000,000.

C) 22.86% and increase its deferred tax liability by $1,000,000.

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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.