When accounting standards require recognition of an expense that is not permitted undertax laws, the result is a:A . deferred tax liability.B . temporary diff erence.C . permanent diff erence.
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When accounting standards require recognition of an expense that is not permitted under
tax laws, the result is a:
A .
B . temporary diff erence.
C . permanent diff erence.
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- Which of the following is a temporary difference that normally is recognized for accounting purposes before being reported as an expense for tax purposes? Unearned revenue Product warranty costs Depreciation Fines resulting from violations of the law.Classify the following items that may cause discrepancy between accounting profit and taxable income, into the following types of differences. Also, provide an explenation why that is their classification. A. Non-deductible expenses B. Non-taxable revenues C. Deductible temporary difference D. Taxable temporary difference Interest earned on investments in tax-exempt government securities. Interest earned on deposits with bank. Excess of profit earned over the profit reported under the installment method for income tax purposes.Classify the following items that may cause discrepancy between accounting profit and taxable income, into the following types of differences. Also, provide an explenation why that is their classification. A. Non-deductible expenses B. Non-taxable revenues C. Deductible temporary difference D. Taxable temporary difference Deductible insurance premiums paid in excess of insurance expense reported for financial reporting. Provision for loss on pending lawsuit expected to be settled during the next reporting period. Insurance premiums paid on life insurance policy where the entity is designated beneficiary. Impairment loss attributed to goodwill. Warranty expense reported for financial reporting purposes in excess of actual costs of repairs done during the period.
- Which of the following statements is NOT correct? A. Taxable income and accounting profit may differ due to differences between the recognition of revenue and expenses for tax and accounting purposes. B. Deferred tax assets must be assessed for the probability of their recovery. Creation of a deferred tax asset or liability occurs only if it reverses at some future date. OC. Deferred tax assets and liabilities may arise due to temporary differences between accounting profit and taxable income. D. Deferred tax liabilities may arise due to permanent differences between accounting profit and taxable income.A contingency that need not be disclosed in the financial statements or in the notes thereto is: a. pending litigation. b. possibility of strike. c. deficiency tax assessment. d. note receivable discounted.Some items are treated as a deduction for tax purposes when they are paid but are recognised as expenses when they are accrued for accounting purposes. Which of the following items are of that type? a. Warranty costs b. Goodwill impairment c. Fines d. Entertainment expenses e. Prepaid insurance
- Some accountants believe that deferred taxes should not be recognized for certain temporary differences. What is the conceptual basis for this argument? What events create permanent differences between accounting income and taxable income? What effect do these events have on the determination of income taxes payable and deferred income taxes? Identify three examples of permanent differences between accounting income and taxable income.What events create permanent differences between accounting income and taxable income? What effect do these events have on the determination of income taxes payable and deferred income taxes? Identify three examples of permanent differences between accounting income and taxable income.Which of the following statements about Loss Contingencies is TRUE? According to the practice of accounting conservatism, contingency losses do not have to be accrued until they are confirmed, while contingency gains have to be recorded when the event confirming their receipt is probable. Remote Losses do not require disclosure. According to the U.S. GAAP, a loss contingency must be accrued by a charge to income if any of the two conditions is met: 1) it is probable that an asset has been impaired, or a liability has been incurred at the date of the financial statements; 2) the amount of the loss can be reasonably estimated. If a loss is probable but cannot be estimated, it shall not be disclosed in the financial statements.
- Which of the following need not be disclosed in the financial statements or the notes thereto? Possible loss as a result of unspecified business risk Probable losses not reasonably estimable Possible assessments of additional taxes Guarantees of indebtedness of others, outflow of resources is reasonably possibleWhen accounting standards require an asset to be expensed immediately but tax rulesrequire the item to be capitalized and amortized, the company will most likely record:A . a deferred tax asset.B . a deferred tax liability.C . no deferred tax asset or liability.Which of the following may not be an effect of VAT on the accounting records of a company? i. The formation of a payable under the current liabilities ii. An addition to the cost of a purchase iii. The formation of a tax asset arising from a sale iv. A receivable from the government arising from a sale v. All of the other choices may be an effect of VAT.
