CHAPTER 18
ACCOUNTING FOR INCOME TAXES
IFRS questions are available at the end of this chapter.
TRUE-FALSE
1. Taxable income is a tax accounting term and is also referred to as income before taxes.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
2. Pretax financial income is the amount used to compute income taxes payable.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Recordkeeping, IFRS: None
3. Deferred tax expense is the increase in the deferred tax liability balance from the
beginning to the end of the accounting period.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
4. A deferred tax liability represents the increase in taxes payable in future years as a result
of taxable temporary differences existing at the end of the current year.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
5. Deductible amounts cause taxable income to be greater than pretax financial income in
the future as a result of existing temporary differences.
Ans: F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
6. A deferred tax asset represents the increase in taxes refundable in future years as a result
of deductible temporary differences existing at the end of the current year.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
7. A company reduces a deferred tax asset by a valuation allowance if it is probable that it
will not realize some portion of the deferred tax asset.
Ans: F, LO: 1, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
8. Companies should consider both positive and negative evidence to determine whether it
needs to record a valuation allowance to reduce a deferred tax asset.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
9. A company should add a decrease in a deferred tax liability to income taxes payable in
computing income tax expense.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
10. Taxable temporary differences will result in taxable amounts in future years when the
related assets are recovered.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
,18 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
11. Examples of taxable temporary differences are subscriptions received in advance and
advance rental receipts.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
12. Permanent differences do not give rise to future taxable or deductible amounts.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
13. Companies must consider presently enacted changes in the tax rate that become effective
in future years when determining the tax rate to apply to existing temporary differences.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
14. When a change in the tax rate is enacted, the effect is reported as an adjustment to
income tax payable in the period of the change.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
15. The tax effect of a loss carryforward represents future tax savings and results in the
recognition of a deferred tax asset.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
16. A possible source of taxable income that may be available to realize a tax benefit for loss
carryforwards is future reversals of existing taxable temporary differences.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
17. Companies are permitted to offset any balances in income taxes payable against related
income tax refund receivable or prepaid income taxes balances.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
18. Companies should classify deferred tax accounts on the balance sheet as current assets
or current liabilities.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
19. The FASB believes that the deferred tax method is the most consistent method for
accounting for income taxes.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
20. Under the loss carryback approach, companies must apply a current year loss to the most
recent year first and then to an earlier year.
Ans: F, LO: 6, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
, Accounting for Income Taxes 18 - 3
MULTIPLE CHOICE—Conceptual
21. 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 because companies use the full accrual method for
financial reporting but use the modified cash basis for tax reporting.
c. is based on generally accepted accounting principles.
d. is reported on the corporation's income statement.
Ans: B, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
22 Taxable income of a corporation differs from pretax financial income because of
Permanent Temporary
Differences Differences
a. No No
b. No Yes
c. Yes Yes
d. Yes No
Ans: C, LO: 1, 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
23. Deferred tax expense is the
a. increase in the balance of deferred tax asset minus the increase in the balance of
deferred tax liability.
b. increase in the balance of deferred tax liability minus the increase in the balance of
deferred tax asset.
c. increase in the balance of deferred tax liability from the beginning to the end of the
accounting period.
d. decrease in the balance of deferred tax asset minus the increase in balance of
deferred tax liability.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
24. 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
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
, 18 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
25. Recognizing a valuation allowance for a deferred tax asset requires that a company
a. consider all positive and negative information in determining the need for a valuation
allowance.
b. consider only the positive information in determining the need for a valuation
allowance.
c. take an aggressive approach in its tax planning.
d. pass a recognition threshold, after assuming that it will be audited by taxing
authorities.
Ans: A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting
and Control: Financial Statement Preparation, IFRS: None
P
26. 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
Ans: A, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
S
27. At the December 31, 2024 balance sheet date, Unruh Corporation reports an accrued
receivable for financial reporting purposes but not for tax purposes. When this asset is
recovered in 2025, a future taxable amount will occur and
a. pretax financial income will exceed taxable income in 2025.
b. Unruh will record a decrease in a deferred tax liability in 2025.
c. total income tax expense for 2025 will exceed current tax expense for 2025.
d. Unruh will record an increase in a deferred tax asset in 2025.
Ans: B, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
P
28. 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
Ans: C, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
S
29. A major distinction between temporary and permanent differences is
ACCOUNTING FOR INCOME TAXES
IFRS questions are available at the end of this chapter.
TRUE-FALSE
1. Taxable income is a tax accounting term and is also referred to as income before taxes.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
2. Pretax financial income is the amount used to compute income taxes payable.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Recordkeeping, IFRS: None
3. Deferred tax expense is the increase in the deferred tax liability balance from the
beginning to the end of the accounting period.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
4. A deferred tax liability represents the increase in taxes payable in future years as a result
of taxable temporary differences existing at the end of the current year.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
5. Deductible amounts cause taxable income to be greater than pretax financial income in
the future as a result of existing temporary differences.
Ans: F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
6. A deferred tax asset represents the increase in taxes refundable in future years as a result
of deductible temporary differences existing at the end of the current year.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
7. A company reduces a deferred tax asset by a valuation allowance if it is probable that it
will not realize some portion of the deferred tax asset.
Ans: F, LO: 1, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
8. Companies should consider both positive and negative evidence to determine whether it
needs to record a valuation allowance to reduce a deferred tax asset.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
9. A company should add a decrease in a deferred tax liability to income taxes payable in
computing income tax expense.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
10. Taxable temporary differences will result in taxable amounts in future years when the
related assets are recovered.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
,18 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
11. Examples of taxable temporary differences are subscriptions received in advance and
advance rental receipts.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
12. Permanent differences do not give rise to future taxable or deductible amounts.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
13. Companies must consider presently enacted changes in the tax rate that become effective
in future years when determining the tax rate to apply to existing temporary differences.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
14. When a change in the tax rate is enacted, the effect is reported as an adjustment to
income tax payable in the period of the change.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
15. The tax effect of a loss carryforward represents future tax savings and results in the
recognition of a deferred tax asset.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
16. A possible source of taxable income that may be available to realize a tax benefit for loss
carryforwards is future reversals of existing taxable temporary differences.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
17. Companies are permitted to offset any balances in income taxes payable against related
income tax refund receivable or prepaid income taxes balances.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
18. Companies should classify deferred tax accounts on the balance sheet as current assets
or current liabilities.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
19. The FASB believes that the deferred tax method is the most consistent method for
accounting for income taxes.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
20. Under the loss carryback approach, companies must apply a current year loss to the most
recent year first and then to an earlier year.
Ans: F, LO: 6, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
, Accounting for Income Taxes 18 - 3
MULTIPLE CHOICE—Conceptual
21. 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 because companies use the full accrual method for
financial reporting but use the modified cash basis for tax reporting.
c. is based on generally accepted accounting principles.
d. is reported on the corporation's income statement.
Ans: B, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
22 Taxable income of a corporation differs from pretax financial income because of
Permanent Temporary
Differences Differences
a. No No
b. No Yes
c. Yes Yes
d. Yes No
Ans: C, LO: 1, 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
23. Deferred tax expense is the
a. increase in the balance of deferred tax asset minus the increase in the balance of
deferred tax liability.
b. increase in the balance of deferred tax liability minus the increase in the balance of
deferred tax asset.
c. increase in the balance of deferred tax liability from the beginning to the end of the
accounting period.
d. decrease in the balance of deferred tax asset minus the increase in balance of
deferred tax liability.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
24. 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
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis,
AICPA PC: None, IMA: Reporting and Control: Financial Recordkeeping, IFRS: None
, 18 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
25. Recognizing a valuation allowance for a deferred tax asset requires that a company
a. consider all positive and negative information in determining the need for a valuation
allowance.
b. consider only the positive information in determining the need for a valuation
allowance.
c. take an aggressive approach in its tax planning.
d. pass a recognition threshold, after assuming that it will be audited by taxing
authorities.
Ans: A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting
and Control: Financial Statement Preparation, IFRS: None
P
26. 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
Ans: A, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
S
27. At the December 31, 2024 balance sheet date, Unruh Corporation reports an accrued
receivable for financial reporting purposes but not for tax purposes. When this asset is
recovered in 2025, a future taxable amount will occur and
a. pretax financial income will exceed taxable income in 2025.
b. Unruh will record a decrease in a deferred tax liability in 2025.
c. total income tax expense for 2025 will exceed current tax expense for 2025.
d. Unruh will record an increase in a deferred tax asset in 2025.
Ans: B, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
P
28. 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
Ans: C, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
S
29. A major distinction between temporary and permanent differences is
