TOA QUIZZER 3Multiple Choice
Identify the choice that best completes the statement or answers the question.
____1.
Which entities are required to apply deferred tax accounting?I. Public entities
II. Nonpublic enttes
a.
I only
c.
Both I and II
b.
II only
d.
Neither I nor II ____2.
I is he excess of axable revenue over axdeductble expenses and exemptons for he yearas dened by he Bureau of Inernal Revenue.
a.
Taxable incoe
c.
!ccounting incoe sub ect to tax
b.
!ccounting incoe per boo#
d.
$oprehensi%e incoe ____&.
I is he ne pro for a period before deductng ax expense.
a.
!ccounting profit
c.
'ross profit
b.
Taxable profit
d.
Net profit
____4.
This is a difference bet(een the tax basis of an asset or liabilityand its carrying aount that (ill result in taxable or deductibleaounts in the future years (hen the carrying aount of theasset or liability is reco%ered or settled.I. Teporary difference
II. Permanen dierence
a.
I only
c.
Both I and II
b.
II only
d.
Neither I nor II
____5.
Taxable teporary difference is theI. Teporary difference that (ill result in future taxable aountin deterining taxable incoe of future periods (hen thecarrying aount of the asset or liability is reco%ered or settled.
II. emporary dierence ha !ill resul in fuuredeductble amoun in deermining axableincome of fuure periods !hen he carryingamoun of he asse or liabiliy is recovered orse led.
a.
Both I and II
c.
II only
b.
I only
d.
Neither I nor II ____).
I is he deferred ax conse#uence a ribuable o a axable emporary dierence.
a.
*eferred tax liability
c.
$urrent tax liability
b.
*eferred tax asset
d.
$urrent tax asset ____+.
I is he deferred ax conse#uence a ribuable oa deductble emporary dierence and operatngloss carryfor!ard.
a.
*eferred tax liability
c.
$urrent tax liability
b.
*eferred tax asset
d.
$urrent tax asset,.
I is he amoun of income ax paid or payable forhe year as deermined in applying he provisionsof he enaced ax la! o he axable income.
a.
$urrent tax expense
c.
*eferred tax benefit
b.
*eferred tax expense
d.
Incoe tax expense-.
he deferred ax expense is e#ual o
a.
Increase in deferred tax asset less the increase in deferred tax liability.
b.
Increase in deferred tax liability inus the increase in deferred tax asset.
c.
Increase in deferred tax asset.
d.
Increase in deferred tax liability./.
I is he aggregae amoun included in he deerminaton of ne pro for he period in respec of curren ax and deferred ax.
a.
Tax expense
c.
*eferred tax expense
b.
$urrent tax expense
d.
*eferred tax benefit.
I is he amoun a ribuable o an asse or liabiliyfor ax purposes.
a.
$arrying aount
c.
0easureent base
b.
Tax base
d.
Taxable aount2.
$ deferred ax liabiliy shall be recogni%ed for all
a.
Peranent differences
c.
Taxable teporary differences
b.
Teporary differences
d.
*eductible teporary differences &.
$ deferred ax asse shall be recogni%ed for alldeductble emporary dierences and operatngloss carryfor!ard !hen
a.
It is probable that taxable incoe (ill be a%ailable against(hich the deferred tax asset can be used
b.
It is probable that accounting incoe (ill be a%ailableagainst (hich the deferred tax asset can be used
c.
It is possible that taxable incoe (ill be a%ailable against(hich the deferred tax asset can be used
d.
It is possible that accounting incoe (ill be a%ailableagainst (hich the deferred tax asset can be used1.Which stateent is
incorrect
concerning ax asses andliabilites&
a.
*eferred tax assets and liabilities shall be discounted.
b.
Tax assets and liabilities shall presented separately froother assets and liabilities in the stateent of financialposition.
c.
*eferred tax assets and liabilities shall be distinguishedfro current tax assets and liabilities.
d.
When an entity a#es a distinction bet(een current andnoncurrent assets and liabilities it shall not classifydeferred tax assets and liabilities as current.
____15.
!n entity shall offset a deferred tax asset and deferred taxliability (henI. The deferred tax asset and deferred tax liability relate toincoe taxes le%ied by the sae taxing authority.
II. he enty has a legal enforceable righ oose a curren ax asse agains a curren axliabiliy.
a.
I only
c.
Both I and II
b.
II only
d.
Neither I nor II
____16.
The follo(ing stateents relate to deferred tax assets or liabilities. Which stateent is
true
?I. *eferred tax liabilities are the aounts of incoe taxespayable in future periods in respect of taxable teporarydifferences.II. *eferred tax assets are the aounts of incoe taxesreco%erable in future periods in respect of deductible
permanent
dierences.
a.
I only
c.
Both I and II
b.
II only
d.
Neither I nor II ____+.
'eferred ax asses are he amoun of incomeaxes recoverable in fuure periods in respec of
a.
The carryfor(ard of unused tax losses only
b.
Taxable teporary differences and carryfor(ard of unusedtax losses
c.
*eductible teporary differences and carryfor(ard of unused tax losses
d.
Peranent differences ____,.!ll of the follo(ing ust be disclosed separately
except
&
a.
The tax bases of a or ites on (hich deferred tax hasbeen calculated.
b.
The aount of deductible teporary differences for (hichno deferred tax asset is recogni3ed.
c.
The aount of taxable teporary differences associated(ith in%estents in subsidiaries and associates for (hichno deferred tax liability is recogni3ed.
d.
The aount of incoe tax relating to each coponent of other coprehensi%e incoe.
____19.
The follo(ing stateents relate to classification of ites under P!4 2. Which stateent is
true
?I. Interest expense accrued but included in taxable profit on acash basis shall be classified under deductible teporarydifferences.
II. (here accumulaed depreciaton on an asse isgreaer han accumulaed ax depreciaton)he amoun shall be classied underdeductble emporary dierences.
a.
I only
c.
Both I and II
b.
II only
d.
Neither I nor II
____20.
Which stateent is
true
in accordance (ith P!4 2?I. *e%elopent costs ha%e been capitali3ed and (ill be aorti3ed but (ere deducted in deterining taxable profit in the period in (hich they (ere incurred. This (ill gi%e rise to a deferred tax asset.
II. he ax base for a machine for ax purposes is greaer han he carrying amoun in he nancial saemens up o he end reportng period. his !ill give rise o a deferred ax asse.
a.
I only
c.
Both I and II
b.
II only
d.
Neither I nor II2.
*ustcaton for he mehod of deerminingperiodic deferred ax expense is based on heconcep of
a.
0atching of periodic expense to periodic re%enue.
b.
5b ecti%ity in the calculation of periodic expense.
c.
6ecognition of assets and liabilities.
d.
$onsistency of tax expense easureent (ith actual tax planning strategies.22.
(hich of he follo!ing dierences !ould resul infuure axable amoun&
a.
7xpenses or losses that are deductible after they arerecogni3ed in accounting incoe.
b.
6e%enues or gains that are taxable before they arerecogni3ed in accounting incoe.
c.
7xpenses or losses that are deductible before they arerecogni3ed in accounting incoe.
d.
6e%enues or gains that are recogni3ed in accountingincoe but are ne%er included in taxable incoe.2&.
$ emporary dierence !hich !ould resul in a deferred ax liabiliy is
a.
Interest re%enue on unicipal bonds.
b.
!ccrual of (arranty expense.
c.
7xcess of tax depreciation o%er accounting depreciation.
d.
4ubscription recei%ed in ad%ance.21.
$ emporary dierence !hich !ould resul in adeferred ax asse is
a.
Tax penalty or surcharge
b.
*i%idend recei%ed on share in%estent
c.
7xcess tax depreciation o%er accounting depreciation
d.
6ent recei%ed in ad%ance included in taxable incoe at thetie of receipt but deferred for accounting purposes
25.
!n entity cash basis taxpayer prepares accrual basis financialstateents. In its year8end stateent of financial position theentity9s deferred incoe tax liabilities increased copared tothe prior year. Which of the follo(ing changes (ould cause thisincrease in deferred tax liabilities?I. !n increase in prepaid insuranceII. !n increase in rent recei%able
III. $n increase in !arrany obligaton
a.
I only
c.
II and III
b.
I and II
d.
III only
____2).
$n enty repored deferred ax asses anddeferred ax liabilites a he end of he prior yearand a he end of he curren year. +or he currenyear) he enty should repor deferred income axexpense or bene e#ual o he
a.
*ecrease in the deferred tax assets
b.
Increase in the deferred tax liabilities
c.
!ount of the current liability plus the su of the netchanges in deferred tax assets and deferred tax liabilities
d.
4u of the net changes in deferred tax assets and deferredtax liabilities ____2+.
Because an enty uses dieren mehods odepreciae e#uipmen for accountng and incomeax purposes) he enty has emporary dierencesha !ill reverse during he nex year and add oaxable income. 'eferred income axes ha arebased on hese emporary dierences shall beclassied in he enty,s saemen of nancialpositon as
a.
$ontra account to current assets
b.
$ontra account to noncurrent assets
c.
$urrent liability
d.
Noncurrent liability ____2,.
$ he mos recen year-end) an enty had adeferred ax liabiliy arising from acceleraeddepreciaton ha exceeded a deferred asserelatng o ren received in advance !hich isexpeced o reverse in he nex year. (hich of hefollo!ing shall be repored in he enty,s mosrecen year-end saemen of nancial positon&
a.
The excess of the deferred tax liability o%er the deferred taxasset as a noncurrent liability.
b.
The excess of the deferred tax liability o%er the deferred taxasset as a current liability.
c.
The deferred tax liability as a noncurrent liability.
d.
The deferred tax liability as a current liability. ____2-.
$n enty,s nancial reportng basis of is planasses exceeded he ax basis because i uses adieren mehod of reportng depreciaton fornancial reportng purposes and ax purposes. If ihas no oher emporary dierences) he entyshall repor a
a.
$urrent tax asset
c.
*eferred tax liability
b.
*eferred tax asset
d.
$urrent tax payable ____&/.
$ deferred ax liabiliy is compued using
a.
$urrent tax la( regardless of expected or enacted future tax la(.
b.
7xpected future tax la( regardless of (hether enacted or not.
c.
$urrent tax la( unless a future enacted tax la( is different.
d.
7ither current or expected future tax la( regardless of (hether the expected future tax la( is enacted or not.&.The purpose of
interperiod
ax allocaton is o
a.
!llo( reporting entities to fully utili3e tax losses carriedfor(ard fro a pre%ious year.
b.
!llo( reporting entities (hose tax liabilities %arysignificantly fro year to year to sooth payents to taxingagencies.
c.
6ecogni3e an asset or liability for the tax consequences of teporary differences that exist at the end of the reportingperiod.
d.
!orti3e the deferred tax liability sho(n in the stateent of financial position.&2.The result of
interperiod
ax allocaton is ha
a.
Wide fluctuations in an entity9s tax liability payents areeliinated.
b.
Tax expense sho(n in the incoe stateent is equal to thedeferred taxes sho(n in the stateent of financial position.
c.
Tax liability sho(n in the stateent of financial position isequal to the taxes sho(n in the pre%ious year9s stateentof financial position plus the incoe tax expense sho(n inthe incoe stateent.
d.
Tax expense sho(n in the incoe stateent is equal toincoe taxes payable for the current year plus or inus thechange in the deferred tax asset or liability balances for theyear.&&.Which of the follo(ing is an exaple of a teporary difference that (ould result in a
deferred tax liability
&
a.
:se of straight line depreciation for accounting purposes and an accelerated rate for incoe tax purposes.
b.
6ent re%enue collected in ad%ance (hen included in taxable incoe before it is included in pretax accounting incoe.
c.
:se of a shorter depreciation period for accounting purposes than is used for incoe tax purposes.
d.
In%estent losses recogni3ed earlier for accounting purposes than for tax purposes.&1.Which of the follo(ing is the ost li#ely ite to result in a
deferred tax asset
&
a.
:sing accelerated depreciation for tax purposes but straight line depreciation for accounting purposes
b.
:sing the cost reco%ery re%enue ethod of recogni3ing construction re%enue for tax purposes but using percentageof copletion ethod for financial reporting purposes
c.
Prepaid expense
d.
:nearned re%enue&;.
$n example of a deductble emporarydierence/ occurs !hen
a.
The installent sales ethod is used for tax purposes butthe accrual ethod of recogni3ing sales re%enue is usedfor financial accounting purposes.
b.
!ccelerated depreciation is used for tax puposes butstraight line depreciation is used for accounting purposes.
c.
Warranty expenses are recogni3ed on the accrual basis for financial accounting purposes but recogni3ed for taxpurposes as the (arranty conditions are et.
d.
The cost reco%ery ethod of recogni3ing constructionre%enue is used for tax purposes but the percentage of copletion ethod is used for financial accountingpurposes. ____&).
$ deferred ax liabiliy arising from he use of anacceleraed mehod of depreciaton for axpurposes and he sraigh line mehod fornancial reportng purposes !ould be classied inhe saemen of nancial positon as
a.
! current liability
b.
! noncurrent liability
c.
! current liability for the portion of the teporary differencere%ersing (ithin a year and a noncurrent liability for thereainder
d.
!n offset to the accuulated depreciation reported in thestateent of financial position ____&+.
$n iem ha !ould creae a permanen dierencein preax nancial income and axable income!ould be
a.
:sing accelerated depreciation for tax purposes andstraight line depreciation for boo# purposes.
b.
Purchasing equipent pre%iously leased (ith an operatinglease in prior years.
c.
:sing the percentage of copletion ethod on long8terconstruction contracts.
d.
Paying fines for %iolation of la(s. ____&,.
Recogni%ing ax bene in a loss year due o a loss carryfor!ard re#uires
a.
5nly a footnote disclosure.
b.
$reating a ne( carryfor(ard for the next year.
c.
$reating a deferred tax asset.
d.
$reating a deferred tax liability. ____&-.
Intraperiod
ax allocaton
a.
In%ol%es the allocation of incoe taxes bet(een current and future periods.
b.
!ssociates tax effect (ith different ites in the incoe stateent.
c.
!rises because certain re%enue and expenses appear in the financial stateents either before or after they are included in the incoe tax return.
d.
!rises because different incoe stateent ites are taxed at different rates. ____1/.
In computng he change in deferred ax asse or liabiliy) !hich ax rae is used&
a.
$urrent tax rate
c.
7nacted future tax rate
b.
7stiated future tax rate
d.
Prior tax rate
____41.It is an existing liability of uncertain timing or uncertain amount.a.Provisionc.ccrued liability b.!ontingent liabilityd. ote #ayable42. #rovision s$all be recogni%ed as liability &$en 'c$oose t$e
incorrect
one(a.n entity $as a #resent obligation as a result of a #ast event. b.It is #robable t$at an outflo& of resources embodying economic benefits &ill be rec)uired to settle t$e obligation.c.It is #ossible t$at an outflo& of resources embodying economic benefits &ill be re)uired to settle t$e obligation.d.*$e amount of t$e obligation can be measured reliably.4+. constructive obligation is an obligationI. rising from contract, legislation or o#eration of la&.II. *$at is derived from an entity-s action t$at t$e entity &ill acce#t certain res#onsibilities because of #ast #ractice, #ublis$ed #olicy or current statement and as a result, t$e entity $as createda valid ex#ectation in ot$er #arties t$at it &ill disc$arge t$ose res#onsibilities.a.I onlyc.ot$ I and II b.II onlyd. eit$er I nor II44.It is an event t$at creates a legal or constructive obligation because t$e entity $as no ot$er realistic alternative but to settle t$e obligation.a./bligating eventc.ubse)uent event b.Past eventd.!urrent event45.n outflo& of resources embodying economic benefits is regarded as #robable &$ena.*$e #robability t$at t$e event &ill occur is greater t$an t$e #robability t$at t$e event &ill not occur. b.*$e #robability t$at t$e event &ill not occur is greater t$an t$e #robability t$at t$e event &ill occur.c.*$e #robability t$at t$e event &ill occur is t$e same as t$e #robability t$at t$e event &ill not occur.d.*$e #robability t$at t$e event &ill occur is 903 liely.46.$ere t$ere is a continuous range of #ossible outcomes, and eac$ #oint in t$at range is as liely as any ot$er, t$e range to be used is t$ea.inimum b.aximumc.id#ointd.ummation of t$e minimum and maximum47.$ere t$e #rovision being measured involves a large #o#ulation of items, t$e obligation is estimated by &eig$ting all #ossible outcomes by t$eir associated #robabilities. *$e name for t$is statistical met$od of estimation isa.8x#ected valuec.!urrent value b.Present valued.8xtra#olation4.$ic$ statement is
incorrect
in t$e measurement of a #rovision:a.*$e riss and uncertainties t$at inevitably surround many events and circumtances s$all be taen into account in reac$ing t$e best estimate of a #rovision. b.$ere te effect of t$e time value of money is material, t$e amount of a #rovision s$all be t$e #resent value of t$e ex#enditure ex#ected to settle t$e obligation.c.;uture events t$at may affect t$e amount re)uired to settle t$e