Problem 15-4 Multiple choice

1. Justification for the method of determining periodic deferred tax expense is based
on the concept of

a. Matching of periodic expense to periodic revenue.

b. Objectivity in calculation of periodic expense.
c. Recognition of assets and liabilities.
d. Consistency of tax expense measurement with actual tax planning strategies.

2. Which of the following differences would result in future taxable amount?

a. Expenses or losses that are deductible after they are recognized in accounting
income.
b. Revenues or gains that are taxable before they are recognized in accounting
income.
c. Expenses or losses that are deductible before they are recognized in accounting
income.
d. Revenues or gains that are recognized in accounting income but are never
included in taxable income.

3. A temporary difference which would result in a deferred tax liability is

a. Interest revenue on municipal bonds.

b. Accrual of warranty expense.
c. Excess tax depreciation over accounting depreciation.
d. Subscription received in advance.

4. A temporary difference which would result in a deferred tax asset is

a. Tax, penalty or surcharge

b. Dividend received on share investment.
c. Excess tax depreciation over accounting depreciation.
d. Rent received in advance included in taxable income at the time of receipt but
deferred for accounting purposes.

5. An entity, cash basis taxpayer, prepares accrual basis financial statements. In its
year-end statement of financial position, the entity’s deferred tax liabilities
increased compared to the prior year. Which of the following changes would cause
 this increase in deferred tax liabilities?

I. An increase in prepaid insurance

II. An increase in rent receivable
III. An increase in warranty obligation

a. I only
b. II only
c. II and III only
d. III only

6. An entity reported deferred tax assets and deferred tax liabilities at the end of the
current year. For the current year, the entity should report deferred income tax
expense or benefit equal to the

a. Decrease in the deferred tax assets

b. Increase in the deferred tax liabilities
c. Amount of the current liability plus the sum of the changes in deferred tax assets
and deferred tax liabilities
d. Sum of the net changes in deferred tax assets and deferred tax liabilities

7. Because an entity uses different methods to depreciate equipment for accounting

and income tax purposes, the entity has temporary differences that will reverse
during the next year and add to taxable income. Deferred income taxes that are
based on these temporary differences shall be classified in the entity’s statement of
financial position as

a. Contra account to current assets

b. Contra account to noncurrent assets
c. Current liability
d. Noncurrent liability

8. At the current year-end, an entity had a deferred tax liability arising from
accelerated depreciation that exceeded a deferred asset relating to rent received in
advance which is expected to reverse in the next year. Which of the following shall
be reported in the entity’s current year-end statement of financial position?

a. The excess of the deferred tax liability over the deferred tax asset as a
noncurrent liability.
b. The excess of the deferred tax liability over the deferred tax asset as a current
liability.
c. The deferred tax liability as a noncurrent liability.
 d. The deferred tax liability as a current liability.

9. The financial reporting basis of a plant asset exceeded the tax basis because a

different method of reporting depreciation is used for financial accounting purpose

and tax purposes. What is reported if there are no other temporary differences?

a. Current tax asset

b. Deferred tax asset
c. Deferred tax liability
d. Current tax payable

10. A deferred tax liability is computed using

a. Current tax law regardless of expected or enacted future law

b. Expected future tax law regardless of whether enacted or not
c. Current tax law unless a future enacted tax law is different
d. Either current or expected future tax law regardless of whether the expected
future tax law is enacted or not.

Answers: Problem 15-4

1. C 6. D
2. C 7. D
3. C 8. C
4. D 9. C
5. B 10. C