1. Which of the following statements is incorrect regarding deferred taxes? a. Income tax payable plus or minus the change in deferred income taxes equals total income tax expense. b. The deferred portion of income tax expense is the amount of change in deferred taxes related to the current period. c. In computing income tax expense, a company deducts an increase in a deferred tax liability to income tax payable. d. All of the choices are incorrect. 2. A liability in 2021 is reported for financial reporting purposes but not for tax purposes. When this liability is settled in 2022, a future taxable amount will: a. pretax financial income will exceed taxable income in 2022. b. the Company will record a decrease in a deferred tax liability in 2022. c. total income tax expense for 2022 will exceed current tax expense for 2022. d. will not be affected. 3. Assuming a 35% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? I. A revenue is recognized for financial reporting purposes but not for tax purposes. II. An expense is deferred for financial reporting purposes but not for tax purposes. III. An expense is deferred for tax purposes but not for financial reporting purposes. IV. A revenue is deferred for tax purposes but not for financial reporting purposes. a. item II only b. items I and II only c. items II and III only d. items I and IV only 4. A taxable income always results when a. revenues exceed operating expenses. b. revenues exceed the cost of goods sold. c. the gross margin exceeds operating expenses. d. none of the choices. 5. How do you call a deductible temporary difference? a. Current tax asset. b. Deferred tax asset. c. Current tax liability. d. Deferred tax liability.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
1. Which of the following statements is incorrect regarding
a. Income tax payable plus or minus the change in deferred income taxes equals total income tax expense.
b. The deferred portion of income tax expense is the amount of change in deferred taxes related to the current period.
c. In computing income tax expense, a company deducts an increase in a
d. All of the choices are incorrect.
2. A liability in 2021 is reported for financial reporting purposes but not for tax purposes. When this liability is settled in 2022, a future taxable amount will:
a. pretax financial income will exceed taxable income in 2022.
b. the Company will record a decrease in a deferred tax liability in 2022.
c. total income tax expense for 2022 will exceed current tax expense for 2022.
d. will not be affected.
3. Assuming a 35% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet?
I. A revenue is recognized for financial reporting purposes but not for tax purposes. II. An expense is deferred for financial reporting purposes but not for tax purposes. III. An expense is deferred for tax purposes but not for financial reporting purposes. IV. A revenue is deferred for tax purposes but not for financial reporting purposes.
a. item II only
b. items I and II only
c. items II and III only
d. items I and IV only
4. A taxable income always results when
a. revenues exceed operating expenses.
b. revenues exceed the cost of goods sold.
c. the gross margin exceeds operating expenses.
d. none of the choices.
5. How do you call a deductible temporary difference?
a. Current tax asset.
b.
c. Current tax liability.
d. Deferred tax liability.
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