Which of the following is the most likely item to result in a deferred tax asset?
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Show Chapter 16—Income Taxes MULTIPLE CHOICE 1. The purpose of an interperiod income tax allocation is to allow reporting entities to fully utilize tax losses carried forward from a previous year. allow reporting entities whose tax liabilities vary significantly from year to year to smooth payments to taxing agencies. recognize an asset or liability for the tax consequences of temporary differences that exist at the balance sheet date. amortize the deferred tax liability shown on the balance sheet. ANS: C PTS: 1 DIF: Easy OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic 2. Which of the following creates a permanent difference between financial income and taxable income? Interest received on municipal bonds Completed contract method of recognizing construction revenue Accelerated cost recovery on plant and equipment ANS: A PTS: 1 DIF: Medium OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic 3. Which of the following creates a temporary difference between financial and taxable income? Fines from violation of law
Interest on municipal bonds Accelerated cost recovery on plant and equipment Premiums paid for officer's life insurance (company is beneficiary) ANS: C PTS: 1 DIF: Medium OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic 4. The result of interperiod income tax allocation is that wide fluctuations in a company's tax liability payments are eliminated. tax expense shown in the income statement is equal to the deferred taxes shown on the balance sheet. tax liability shown in the balance sheet is equal to the deferred taxes shown on the previous year's balance sheet plus the income tax expense shown on the income statement. tax expense shown on the income statement is equal to income taxes payable for the current year plus or minus the change in the deferred tax asset or liability balances for the year. ANS: D PTS: 1 DIF: Easy OBJ: LO 1 TOP: AICPA FN-Measurement MSC: AACSB Analytic 5. An item that would create a permanent difference in pretax financial and taxable incomes would be using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. purchasing equipment previously leased with an operating lease in prior years. using the percentage-of-completion method on long-term construction contracts. paying fines for violation of laws. ANS: D PTS: 1 DIF: Easy OBJ: LO 1 What creates a deferred tax asset?A deferred tax asset is an item on the balance sheet that results from the overpayment or the advance payment of taxes. It is the opposite of a deferred tax liability, which represents income taxes owed.
Which of the following does a deferred tax asset represent?A deferred tax liability or asset represents the amount of taxes payable or refundable in future years as a result of temporary differences at the end of the current year.
What is an example of deferred asset?Examples of Deferred Assets
Examples of expenditures that are routinely treated as deferred assets are prepaid insurance, prepaid rent, prepaid advertising, and bond issuance costs.
What is a deferred tax asset quizlet?A deferred tax asset represents the: decrease in taxes saved in future years as a result of deductible temporary differences.
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