QUIZ 4

INTERM3 – Intermediate Accounting 3

December 9, 2019

Name: _____________________________________________ Score: ___________________

Prof: Mr. John Miller E. Gubot Course/Yr./Section: _________

Instructions:
1. Encircle the letter of the correct answer.
2. Use permanent ink only when encircling the letter of your final answer.
3. Avoid erasures, it will invalidate your answer.
4. For multiple choice problems, provide a sensible solution. NO SOLUTION, NO POINT CREDIT.

PART I – MULTIPLE CHOICE THEORIES (1 POINT EACH)

1. It is the profit for a period determined in accordance with the rules established by tax authorities upon which
income taxes are payable.
a. Accounting profit c. Net profit
b. Taxable profit d. Accounting profit subject to tax

2. It is the profit for a period before deducting tax expense.

a. Accounting profit c. Gross profit
b. Taxable profit d. Net profit

3. These are differences that will result in future taxable amount in determining taxable profit of future periods
when the carrying amount of the asset or liability is recovered or settled.
a. Temporary differences c. Deductible temporary differences
b. Taxable temporary differences d. Permanent differences

4. These are differences that will result in future deductible amount in determining taxable profit of future periods
when the carrying amount of the asset or liability is recovered or settled.
a. Temporary differences c. Deductible temporary differences
b. Taxable temporary differences d. Permanent differences

5. Which entities are required to apply deferred tax accounting?

a. Publicly listed entities only. c. Both a and b.
b. Non-publicly listed entities only. d. Neither a nor b.

6. It is the amount attributable to an asset or liability for tax purpose.

a. Carrying amount c. Measurement base
b. Tax base d. Taxable amount

7. An entity shall offset a deferred tax asset and deferred tax liability when
I. The deferred tax asset ad deferred tax liability relate to income taxes levied by the same taxing authority.
II. The entity has a legal and enforceable right to offset a current tax asset against a current tax liability.

a. I only c. Neither I nor II

b. II only d. Both I and II

8. A deferred tax liability shall be recognized for all

a. permanent differences. c. taxable temporary differences.
b. temporary differences. d. deductible temporary differences.

9. 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 of tax depreciation over accounting depreciation.
d. subscription received in advanced.

10. Under current GAAP, which approach is used to determine income tax expense?
a. Asset and liability approach
b. A “with and without” approach
c. Net of tax approach
d. Periodic expense approach

Intermediate Accounting 3 1 of 4
First Term, A.Y. 2019 - 2020
QUIZ 4
John Miller E. Gubot
 11. All of the following can result in a temporary difference between pretax financial income and taxable income
except for
a. payment of premiums for life insurance. c. provision for pending lawsuits.
b. depreciation expense. d. product warranty costs.

12. Which of the following items results in a temporary difference deductible amount for a given year?
a. Premiums on officer's life insurance (company is beneficiary)
b. Recognition of unrealized gains on financial liabilities that are measured at fair value through profit or loss.
c. Vacation pay accrual
d. Accelerated depreciation for tax purposes; straight-line for financial reporting purposes

13. Which of the following temporary differences may result to a deferred tax liability?
a. Accrued warranty costs
b. Subscription revenue received in advance
c. Unrealized losses on held for trading securities
d. Depreciation

14. When enacted tax rates change, the asset and liability method of interperiod tax allocation recognizes the
rate change as
a. a cumulative effect adjustment.
b. an adjustment to be netted against the current income tax expense.
c. a separate charge to the current year's net income.
d. a separate charge or benefit to income tax expense.

15. Current financial reporting standards currently are moving toward the
a. no-deferral approach.
b. partial recognition approach.
c. comprehensive recognition approach.
d. discounted comprehensive recognition approach.

16. If all temporary differences entering into the determination of pretax accounting income are considered in the
computation of deferred taxes and income tax expense, then
a. the no-deferral approach is being applied.
b. the comprehensive recognition approach is being applied.
c. the partial recognition approach is being applied.
d. the net-of-tax method is being applied.

17. If there is a change in the tax rate applicable in future periods, which of the following statements is incorrect?
a. Current tax expense may be equal to taxable profit multiplied by the enacted tax rate(s) applicable to the
period(s) where the profit was earned.
b. Deferred tax asset or liability is computed based on the substantially enacted tax rate that is applicable in
the period where the deferred tax is expected to reverse.
c. Income tax expense is equal to accounting profit multiplied by the substantially enacted future tax rate.
d. Deferred tax expense (benefit) is equal to the net change in deferred tax asset and deferred tax liability
during the year.

18. Temporary differences arise when revenues are taxable

I. after they are recognized in financial income.
II. before they are recognized in financial income.

a. Both I and II c. Neither I nor II

b. I only d. II only

19. Which of the following situations would require interperiod income tax allocation procedures?
a. A temporary difference exists because the tax basis of capital equipment is less than its reported amount
in the financial statements.
b. Proceeds from an insurance policy on capital equipment lost in a fire exceed the book value of the
equipment.
c. Last period's ending inventory was understated causing both net income and income tax expense to be
understated.
d. Nontaxable interest payments are received on municipal bonds.

20. The result of interperiod income tax allocation is that

a. wide fluctuations in a company's tax liability payments are eliminated.
b. tax expense shown in the income statement is equal to the deferred taxes shown on the balance sheet.
c. tax liability shown in the balance sheet is equal to the deferred taxes shown on the previous year's balance
sheet plus the income tax expense shown on the income statement.
d. tax expense shown on the income statement is equal to income taxes payable for the current year plus
or minus the change in the deferred tax asset or liability balances for the year.

Intermediate Accounting 3 2 of 4
First Term, A.Y. 2019 - 2020
QUIZ 4
John Miller E. Gubot
PART II – MULTIPLE CHOICE PROBLEMS (2 POINTS EACH)

Item nos. 1 and 2 are based on the following:

Bee Corp. prepared the following reconciliation between book income and taxable income for the year ended
December 31, 20x0:
Pretax accounting income 500,000
Taxable income 300,000
Difference 200,000

Interest on municipal bonds 50,000

Lower depreciation per financial statements 150,000
Total differences 200,000

Bee's effective income tax rate for 20x0 is 30%. The depreciation difference will reverse equally over the next
three years at enacted tax rates as follows:
Years Tax rates
20x1 30%
20x2 25%
20x3 25%

1. In Bee's 20x0 income statement, the current portion of its provision for income taxes should be
a. ₱150,000 c. ₱90,000
b. ₱125,000 d. ₱75,000

2. In Bee's 20x0 financial statements, the deferred portion of its provision for income taxes should be
a. ₱60,000 c. ₱45,000
b. ₱50,000 d. ₱40,000

3. In its December 31, 20x0 balance sheet, Quinn Co. reported a deferred tax asset of ₱9,000 and no deferred
tax liability. For 20x1, Quinn reported pretax financial statement income of ₱300,000. Temporary differences of
₱100,000 resulted in taxable income of ₱200,000 for 20x1. At December 31, 20x1, Quinn had cumulative
taxable differences of ₱70,000. Quinn's effective income tax rate is 30%. In its December 31, 20x1, income
statement, what should Quinn report as deferred income tax expense?
a. ₱12,000 c. ₱30,000
b. ₱21,000 d. ₱60,000

4. On its December 31, 20x1, balance sheet, Shin Co. had income taxes payable of ₱13,000 and a deferred tax
asset of ₱20,000 before determining the need for a valuation account. Shin had reported a deferred tax asset
of ₱15,000 at December 31, 20x0. No estimated tax payments were made during 20x1. At December 31, 20x1,
Shin determined that it was more likely than not that 10% of the deferred tax asset would not be realized. In its
20x1 income statement, what amount should Shin report as total income tax expense?
a. ₱8,000 c. ₱10,000
b. ₱8,500 d. ₱13,000

5. Taft Corp. uses the equity method to account for its 25% investment in Flame, Inc. During 20x1, Taft received
dividends of ₱30,000 from Flame and recorded ₱180,000 as its equity in the earnings of Flame. Additional
information follows:
 All the undistributed earnings of Flame will be distributed as dividends in future periods.
 The dividends received from Flame are eligible for the 80% dividends received deduction.
 There are no other temporary differences.
 Enacted income tax rates are 30% for 20x1 and thereafter.

In its December 31, 20x1, balance sheet, what amount should Taft report for deferred income tax liability?
a. ₱9,000 c. ₱45,000
b. ₱10,800 d. ₱54,000

6. Bishop Corporation began operations in 20x7 and had operating losses of ₱200,000 in 20x7 and ₱150,000 in
20x8. For the year ended December 31, 20x9, Bishop had pretax book income of ₱300,000. For the three-year
period 20x7 to 20x9, assume an income tax rate of 40% and no permanent or temporary differences between
book and taxable income. In Bishop’s 20x9 income statement, how much should be reported as total income
tax expense?
a. ₱0 c. ₱60,000
b. ₱40,000 d. ₱120,000

Intermediate Accounting 3 3 of 4
First Term, A.Y. 2019 - 2020
QUIZ 4
John Miller E. Gubot
Item nos. 7 and 8 are based on the following:
Venus Corp.’s worksheet for calculating current and deferred income taxes for 20x2 follows:
20x2 20x3 20x4
Pretax income 1,400
Temporary differences:
Depreciation (800) (1,200) 2,000
Warranty costs 400 (100) (300)
Taxable income 1,000 (1,300) 1,700

Enacted rate 30% 30% 25%

Venus had no prior deferred tax balances. In its 20x2 income statement, what amount should Venus report as:

7. current income tax expense?

a. ₱420 c. ₱300
b. ₱350 d. ₱0

8. deferred income tax expense?

a. ₱350 c. ₱120
b. ₱300 d. ₱95

9. Black Co., organized on January 2, 20x0, had pretax financial statement income of ₱500,000 and taxable
income of ₱800,000 for the year ended December 31, 20x0. The only temporary differences are accrued
product warranty costs, which Black expects to pay as follows:
20x1 ₱100,000
20x2 50,000
20x3 50,000
20x4 100,000

The enacted income tax rates are 25% for 20x0, 30% for 20x1 through 20x3, and 35% for 20x4. Black
believes that future years' operations will produce profits. In its December 31, 20x0, balance sheet, what
amount should Black report as deferred tax asset?
a. ₱50,000 c. ₱90,000
b. ₱75,000 d. ₱95,000

10. Rom Corp. began business in 20x1 and reported taxable income of ₱50,000 on its 20x1 tax return. Rom's
enacted tax rate is 30% for 20x1 and future years. The following is a schedule of Rom's December 31, 20x1,
temporary differences in thousands of dollars:

12/31/x1 Future taxable (deductible) amounts

Carrying
amount over
(under) Tax
base 20x2 20x3 20x4 20x5
Equipment 10 (5) 5 5 5
Warranty liability (20) (10) (10)
Deferred compensation
liability (15) (5) (10)
Installment receivables 30 10 20
Totals 5 (5) (10) 25 (5)

What amount should Rom report as total deferred tax asset in its December 31, 20x1, balance sheet?
a. ₱0 c. ₱4,500
b. ₱1,500 d. ₱6,000

"For God has not given us a spirit of fear and timidity,

but of power, love, and self-discipline."

2 Timothy 1:7

Intermediate Accounting 3 4 of 4
First Term, A.Y. 2019 - 2020
QUIZ 4
John Miller E. Gubot