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Nonordinary items resulting in income or loss
a. |
include unusual but not infrequent gains. |
b. |
are treated the same as ordinary items when calculating the effective tax rate. |
c. |
are always treated as a total group when calculating the effective rate for the quarter. |
d. |
are always excluded from interim reporting. |
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- Definitions The FASB has defined several terms in regard to accounting for income taxes. Below are various code letters (for terms) followed by definitions. 1. The deferred tax consequences of future deductible amounts and operating loss carryforwards 2. A difference between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively 3. Temporary difference that results in taxable amounts in future years when the related asset or liability is recovered or settled, respectively 4. The future effects on income taxes, as measured by the applicable enacted tax rate and provisions of the enacted tax low, resulting from temporary differences and operating loss carryforwards at the end of the current year 5. The change during the year in a corporations deferred tax liabilities and assets 6. The deferred tax consequences of future taxable amounts 7. The portion of o deferred tax asset for which it is more likely than not that a tax benefit will not be realized 8. Temporary difference that results in deductible amounts in future years when the related asset or liability is recovered or settled, respectively 9. The sum of income tax payable and deferred tax expense (or benefit) 10. The amount of income taxes paid or payable (or refundable) for the current year 11. An excess of tax deductible expenses over taxable revenues in a year that may be carried forward to reduce taxable income in a future year 12. The excess of taxable revenues over tax deductible expenses and exemptions for the year 13. Income tax expense divided by income before income taxesTemporary and Permanent Differences In the current year, you are calculating a diversified companys deferred taxes. Based on an analysis of the companys current taxable income and pretax financial income, you have identified the following items that create differences between the two amounts and that may result in differences between the companys future taxable income and its nature pretax financial income: Required: For each difference, indicate whether it is a temporary difference (T) or a permanent difference (P) by placing the appropriate letter on the line provided. If the difference is a temporary difference, also indicate for the current year whether it will result in a future taxable amount (FT) or a future deductible amount (FD).1. Which statement is true about intraperiod tax allocation? a. It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return b. It is required for the cumulative effect of accounting changes but not for prick period adjustments c. The purpose is to allocate income tax expense evenly over a number of accounting periods d. The purpose is to relate the income tax expense to the items which affect the amount of tax 2. Which temporary difference would result in a deferred tax asset? 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 but deferred for financial accounting 3. Which temporary difference would result in a deferred tax liability? a. Interest revenue on municipal bonds b. Accrual of warranty expense c. Excess tax depreciation over…
- In relation to accounting for income taxes, which one of the following statements is correct? a. Tax expense is the sum of current tax expense plus deferred tax expense. b. All movements in deferred tax assets and liabilities are recognised in the statement of profit or loss and other comprehensive income. c. Current tax expense is the sum of tax expense plus deferred tax expense. d. Deferred tax liabilities are determined from deductible temporary differences.(Identify Temporary or Permanent Differences) Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes.InstructionsFor each item below, indicate whether it involves:(1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset.(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability.(3) A permanent difference.Use the appropriate number to indicate your answer for each.(a) ______ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets.(b) ______ A landlord collects some rents in advance. Rents received are taxable in the period when they are received.(c) ______ Expenses are incurred in obtaining tax-exempt income.(d) ______ Costs of guarantees…Discontinued operations, and unusual gains and losses are both reported net of tax in the income statement. Is it true or false.
- Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. Instructions For each item below, indicate whether it involves: 1. A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. 2. A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. 3. A permanent difference. Use the appropriate number to indicate your answer for each. a. ________ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets. b. ________ A landlord collects some rents in advance. Rents received are taxable in the period when they are received. c. ________ Expenses are incurred in obtaining tax-exempt income. d. ________ Costs of guarantees and warranties are estimated…Which statement is false?a) Deferred taxes are the product of temporary difference in the recognition ofrevenue and expense for taxable income relative to reported income.b) Deferred taxes arise from the use of the same method of depreciation for tax andreporting purposes.c) Deferred taxes arise when taxes actually paid are less than tax expense reported inthe financial statements.d) Temporary difference causing the recognition of deferred taxes may arise fromthe methods used to account for items such as depreciation, installment sales,leases, and pensions.Which general principle applies to the reporting of income tax expenses under interim income statement accounting principles A Reporting should not be done unless there are unusual events that occur in the period and are expect to affect the fiscal year tax liability. B Reporting should be based on a prorate share of the previous fiscal year’s taxes C Reporting should be based on an estimate of the effective annual tax rate and tax liability for the full fiscal year. D Reporting should be based on the last year’s effective tax rates and tax liability for the full fiscal year.