INTERMEDIATE ACCOUNTING III -
D105 – WGU EXAM QUESTIONS &
ACCURATE COMPLETE SOLUTIONS
What does a deferred tax liability represent?
Future tax expense
Future tax liability
Future tax benefit
Future taxable amount - Correct Answer ✔✔ Future Tax Liability
Which temporary difference results in a deferred tax asset?
Prepaid insurance expense
Accrual for product warranty liability
Interest payments received from municipal bonds
Dividends received from a joint venture - Correct Answer ✔✔ Accrual for product
warranty liability
Which partial entry should be used to record the temporary difference between income
tax expense of $10,000 and income taxes payable of $12,000?
Debit to a deferred tax asset
Credit to a deferred tax asset
Credit to a deferred tax liability
Debit to a deferred tax liability - Correct Answer ✔✔ Debit to a deferred tax asset
What is a deferred tax asset?
A company's balance sheet account representing funds to be paid to the government
A payment to a company, based on profitability, that is paid in advance from the
government
A company's balance sheet account representing funds paid in advance to the
government
A payment to a company, based on profitability, to be paid from the government -
Correct Answer ✔✔ A company's balance sheet account representing funds paid in
advance to the government
Why is taxable income different from accounting income?
Because the International Financial Reporting Standards Foundation requires the full
accrual method over modified cash basis
, Because companies use full accrual for tax reporting and modified cash basis for
financial reporting
Because the International Financial Reporting Standards Foundation requires the
modified cash basis over the full accrual method
Because companies use full accrual for financial reporting and modified cash basis for
tax reporting - Correct Answer ✔✔ Because companies use full accrual for financial
reporting and modified cash basis for tax reporting
Which type of tax rate is used to measure a deferred tax asset or liability when an
entity's income is subjected to a graduated rate schedule?
Historical rates
Marginal rates
Regressive rates
Average rates - Correct Answer ✔✔ Average Rates
Which temporary difference increases net income in the current financial statements but
is potentially taxable in a future period?
Gain from involuntary conversion of a nonmonetary asset
Proceeds from life insurance carried by the company on key officers
Interest earned from tax-exempt bonds
Advance rental receipts - Correct Answer ✔✔ Gain from involuntary conversion of a
nonmonetary asset
Which account may companies use to reduce income taxes payable?
Sales tax
Prepaid income taxes
Provision for federal income tax
Allowance for probable income tax reductions - Correct Answer ✔✔ Prepaid income
taxes
Which situation causes a company to have a permanent difference between accounting
and taxable incomes?
A fine resulting from violations of regulations
Estimates of funds to be paid for warranties offered
Wages accruing for quarterly commission payouts
An allowance for bad debt for a large account receivable - Correct Answer ✔✔ A fine
resulting from violations of regulations
Which item is considered a permanent difference between financial statements and
taxable income?
Advance rental receipts
D105 – WGU EXAM QUESTIONS &
ACCURATE COMPLETE SOLUTIONS
What does a deferred tax liability represent?
Future tax expense
Future tax liability
Future tax benefit
Future taxable amount - Correct Answer ✔✔ Future Tax Liability
Which temporary difference results in a deferred tax asset?
Prepaid insurance expense
Accrual for product warranty liability
Interest payments received from municipal bonds
Dividends received from a joint venture - Correct Answer ✔✔ Accrual for product
warranty liability
Which partial entry should be used to record the temporary difference between income
tax expense of $10,000 and income taxes payable of $12,000?
Debit to a deferred tax asset
Credit to a deferred tax asset
Credit to a deferred tax liability
Debit to a deferred tax liability - Correct Answer ✔✔ Debit to a deferred tax asset
What is a deferred tax asset?
A company's balance sheet account representing funds to be paid to the government
A payment to a company, based on profitability, that is paid in advance from the
government
A company's balance sheet account representing funds paid in advance to the
government
A payment to a company, based on profitability, to be paid from the government -
Correct Answer ✔✔ A company's balance sheet account representing funds paid in
advance to the government
Why is taxable income different from accounting income?
Because the International Financial Reporting Standards Foundation requires the full
accrual method over modified cash basis
, Because companies use full accrual for tax reporting and modified cash basis for
financial reporting
Because the International Financial Reporting Standards Foundation requires the
modified cash basis over the full accrual method
Because companies use full accrual for financial reporting and modified cash basis for
tax reporting - Correct Answer ✔✔ Because companies use full accrual for financial
reporting and modified cash basis for tax reporting
Which type of tax rate is used to measure a deferred tax asset or liability when an
entity's income is subjected to a graduated rate schedule?
Historical rates
Marginal rates
Regressive rates
Average rates - Correct Answer ✔✔ Average Rates
Which temporary difference increases net income in the current financial statements but
is potentially taxable in a future period?
Gain from involuntary conversion of a nonmonetary asset
Proceeds from life insurance carried by the company on key officers
Interest earned from tax-exempt bonds
Advance rental receipts - Correct Answer ✔✔ Gain from involuntary conversion of a
nonmonetary asset
Which account may companies use to reduce income taxes payable?
Sales tax
Prepaid income taxes
Provision for federal income tax
Allowance for probable income tax reductions - Correct Answer ✔✔ Prepaid income
taxes
Which situation causes a company to have a permanent difference between accounting
and taxable incomes?
A fine resulting from violations of regulations
Estimates of funds to be paid for warranties offered
Wages accruing for quarterly commission payouts
An allowance for bad debt for a large account receivable - Correct Answer ✔✔ A fine
resulting from violations of regulations
Which item is considered a permanent difference between financial statements and
taxable income?
Advance rental receipts
