College of Business and Accountancy
Accountancy Department
Intermediate Accounting I
MIDTERM TERMINAL OUTPUT
__________________________________________________________________________________________
ACCOUNTING FOR INCOME TAXES
I. THEORY
1. Taxable income of a corporation
a. differs from accounting income due to differences in intraperiod allocation between the two
methods of income determination.
b. differs from accounting income due to differences in interperiod allocation and permanent
differences between the two methods of income determination.
c. is based on generally accepted accounting principles.
d. is reported on the corporation's income statement.
2. The deferred tax expense is the
a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.
3. Interperiod tax allocation results in a deferred tax liability from
a. an income item partially recognized for financial purposes but fully recognized for tax purposes in
any one year.
b. the amount of deferred tax consequences attributed to temporary differences that result in net
deductible amounts in future years.
c. an income item fully recognized for tax and financial purposes in any one year.
d. the amount of deferred tax consequences attributed to temporary differences that result in net
taxable amounts in future years.
,4. Which of the following situations would require interperiod income tax allocation procedures?
a. An excess of percentage depletion over cost depletion
b. Interest received on municipal bonds
c. A temporary difference exists at the balance sheet date because the tax basis of an asset or
liability and its reported amount in the financial statements differ
d. Proceeds from a life insurance policy on an officer
5. Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the
machinery could result in
Future Future
Taxable Amounts Deductible Amounts
a. Yes Yes
b. Yes No
c. No Yes
d. No No
6. A temporary difference arises when a revenue item is reported for tax purposes in a period
After it is reported Before it is reported
in financial income in financial income
a. Yes Yes
b. Yes No
c. No Yes
d. No No
7. At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued
receivable for financial reporting purposes but not for tax purposes. When this asset is
recovered in 2008, a future taxable amount will occur and
a. pretax financial income will exceed taxable income in 2008.
b. Garth will record a decrease in a deferred tax liability in 2008.
c. total income tax expense for 2008 will exceed current tax expense for 2008.
d. Garth will record an increase in a deferred tax asset in 2008.
, 8. Assuming a 40% 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 deferred for financial reporting purposes but not for tax purposes.
II- A revenue is deferred for tax purposes but not for financial reporting purposes.
III- An expense is deferred for financial reporting purposes but not for tax purposes.
IV- An expense 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
9. A major distinction between temporary and permanent differences is
a. permanent differences are not representative of acceptable accounting practice.
b. temporary differences occur frequently, whereas permanent differences occur only once.
c. once an item is determined to be a temporary difference, it maintains that status; however, a
permanent difference can change in status with the passage of time.
d. temporary differences reverse themselves in subsequent accounting periods, whereas
permanent differences do not reverse.
10. Which of the following are temporary differences that are normally classified as expenses or
losses that are deductible after they are recognized in financial income?
a. Advance rental receipts.
b. Product warranty liabilities.
c. Depreciable property.
d. Fines and expenses resulting from a violation of law.
11. Which of the following is a temporary difference classified as a revenue or gain that is taxable
after it is recognized in financial income?
a. Subscriptions received in advance.
b. Prepaid royalty received in advance.
c. An installment sale accounted for on the accrual basis for financial reporting purposes and on
the installment (cash) basis for tax purposes.
d. Interest received on a municipal obligation.
Accountancy Department
Intermediate Accounting I
MIDTERM TERMINAL OUTPUT
__________________________________________________________________________________________
ACCOUNTING FOR INCOME TAXES
I. THEORY
1. Taxable income of a corporation
a. differs from accounting income due to differences in intraperiod allocation between the two
methods of income determination.
b. differs from accounting income due to differences in interperiod allocation and permanent
differences between the two methods of income determination.
c. is based on generally accepted accounting principles.
d. is reported on the corporation's income statement.
2. The deferred tax expense is the
a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.
3. Interperiod tax allocation results in a deferred tax liability from
a. an income item partially recognized for financial purposes but fully recognized for tax purposes in
any one year.
b. the amount of deferred tax consequences attributed to temporary differences that result in net
deductible amounts in future years.
c. an income item fully recognized for tax and financial purposes in any one year.
d. the amount of deferred tax consequences attributed to temporary differences that result in net
taxable amounts in future years.
,4. Which of the following situations would require interperiod income tax allocation procedures?
a. An excess of percentage depletion over cost depletion
b. Interest received on municipal bonds
c. A temporary difference exists at the balance sheet date because the tax basis of an asset or
liability and its reported amount in the financial statements differ
d. Proceeds from a life insurance policy on an officer
5. Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the
machinery could result in
Future Future
Taxable Amounts Deductible Amounts
a. Yes Yes
b. Yes No
c. No Yes
d. No No
6. A temporary difference arises when a revenue item is reported for tax purposes in a period
After it is reported Before it is reported
in financial income in financial income
a. Yes Yes
b. Yes No
c. No Yes
d. No No
7. At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports an accrued
receivable for financial reporting purposes but not for tax purposes. When this asset is
recovered in 2008, a future taxable amount will occur and
a. pretax financial income will exceed taxable income in 2008.
b. Garth will record a decrease in a deferred tax liability in 2008.
c. total income tax expense for 2008 will exceed current tax expense for 2008.
d. Garth will record an increase in a deferred tax asset in 2008.
, 8. Assuming a 40% 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 deferred for financial reporting purposes but not for tax purposes.
II- A revenue is deferred for tax purposes but not for financial reporting purposes.
III- An expense is deferred for financial reporting purposes but not for tax purposes.
IV- An expense 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
9. A major distinction between temporary and permanent differences is
a. permanent differences are not representative of acceptable accounting practice.
b. temporary differences occur frequently, whereas permanent differences occur only once.
c. once an item is determined to be a temporary difference, it maintains that status; however, a
permanent difference can change in status with the passage of time.
d. temporary differences reverse themselves in subsequent accounting periods, whereas
permanent differences do not reverse.
10. Which of the following are temporary differences that are normally classified as expenses or
losses that are deductible after they are recognized in financial income?
a. Advance rental receipts.
b. Product warranty liabilities.
c. Depreciable property.
d. Fines and expenses resulting from a violation of law.
11. Which of the following is a temporary difference classified as a revenue or gain that is taxable
after it is recognized in financial income?
a. Subscriptions received in advance.
b. Prepaid royalty received in advance.
c. An installment sale accounted for on the accrual basis for financial reporting purposes and on
the installment (cash) basis for tax purposes.
d. Interest received on a municipal obligation.
