1. Income tax expense is based on pretax income.

2. A deferred tax liability represents the A deferred tax liability is the increase in future taxes payable due to temporary taxable differences.

3. A deferred tax asset represents the Correct! A deferred tax asset is the increase in taxes saved in future years due to a temporary deductible difference.

4. A deferred tax valuation allowance account is used to recognize a reduction in A valuation allowance account is established to recognize the reduction in a deferred tax asset.

5. Grey Corporation prepared the following reconciliation for 2012, its first year of operations: Pretax financial income for 2012 $1,030,000 Tax exempt interest (175,000) Originating temporary difference (345,000) Taxable income $820,000 The temporary difference will reverse evenly over the next two years at an enacted tax rate of 35%. The enacted tax rate for 2012 is 30%. What amount should Grey report in its 2012 income statement as the deferred portion of the provision for income taxes? A. $59,500 debit B. $120,750 debit C. $103,500 credit D. $61,250 credit $345,000 X 35%, or $120,750 as a debit value.

6. Which of the following are temporary differences that are normally classified as expenses or losses and are deductible after they are recognized in financial income? Product warranty liabilities are temporary differences normally classified as an expense or loss that are deductible after they are recognized in financial income.

7. Larsen Corporation reported $100,000 in revenues in its 2010 financial statements, of which $44,000 will not be included in the tax return until 2011. The enacted tax rate is 40% for 2010 and 35% for 2011. What amount should Larsen report for deferred income tax liability in its balance sheet at

December 31, 2010? A. $15,400 B. $17,600 C. $19,600 D. $22,400 Correct! $44,000 .35 = $15,400.

8. Recognition of tax benefits in the loss year due to a loss carryforward requires Recognition of tax benefits in the loss year due to a loss carryforward requires the establishment of a deferred tax asset.

9. Deferred taxes should be presented on the balance sheet Deferred taxes should be reported on the balance sheet in two amounts: one for the net current amount and one for the net noncurrent amount.

10. The FASB believes that the most consistent method for accounting for income taxes is the The FASB believes the asset-liability model to be the most consistent method for accounting for income taxes.

11. Weasley Corp.'s 2011 income statement showed pretax accounting income of $1,020,000. To compute the federal income tax liability, the following 2011 data are provided: Income from exempt municipal bonds $55,000 Depreciation deducted for tax purposes in excess of depreciation 72,000 deducted for financial statement purposes Estimated federal income tax payments made 165,000 Enacted corporate income tax rate 28% What amount of current federal income tax liability should be included in Weasley's December 31, 2011 balance sheet? A. $85,040 B. $250,040 C. $100,440 D. $212,240 Correct! [($1,020,000 - $55,000 - $72,000) X 28%] minus $165,000 equals $85,040.

12. Correct! Deferred tax expense is the increase in a deferred tax liability.

13. Gautreaux Company reported the following results for the year ended December 31, 2011, its first year of operations: Income (per books before income taxes) $1,650,000 Taxable income 2,225,000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2012. What should Gautreaux record as a net deferred tax asset or liability for the year ended December 31, 2011, assuming that the enacted tax rates in effect are 35% in 2011 and 30% in 2012? A. $201,250 deferred tax liability B. $172,500 deferred tax asset C. $201,250 deferred tax asset D. $172,500 deferred tax liability ($2,225,000 less $1,650,000) * 30% results in $172,500 deferred tax asset.

14. On December 31, 2011, Mayfield Inc. has determined that it is more likely than not that $120,000 of a $300,000 deferred tax asset will not be realized. The journal entry to record this reduction in asset value will include a A. debit to Income Tax Expense for $180,000. B. credit to Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $120,000. C. debit to Income Tax Payable of $120,000. D. credit to Income Tax Expense for $180,000. A company reduces a deferred tax asset by a valuation account if it is more likely than not that it will not realize some portion or all of the deferred asset.

15. Collier Corporation has income before income taxes of $532,000 in 2011. The current provision for income taxes is $105,000 and the provision for deferred income taxes is $82,500. Collier's net income for 2011 is A. $449,500. B. $509,500. C. $344,500. D. $427,000. Net income is [$532,000 - ($105,000 + $82,500)] $344,500.

16. Broker Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Broker would be

An item that would create a permanent difference in accounting and taxable incomes would be a fine resulting from violations of OSHA regulations.

17. Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if it appears likely that a future tax rate will be less than the current tax rate.

18. Mast, Inc. reports a taxable and financial loss of $650,000 for 2011. Its pretax financial income for the last two years was as follows: 2009 $300,000 2010 400,000 The amount that Mast, Inc. reports as a net loss for financial reporting purposes in 2011, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is A. $650,000 loss. B. $ -0-. C. $195,000 loss. D. $440,000 loss. $650,000 loss less the tax benefit of ([$300,000 * 30%] plus [$400,000 * 30%]) results in a net loss of $440,000.

19. A deferred income tax asset or liability is usually classified as a The classification of a deferred asset or liability depends on the classification of the related asset or liability for financial reporting purposes.

20. The last step (procedure) in the computation of deferred income taxes is to The last step in the computation of deferred income taxes is to reduce deferred tax assets by a valuation allowance if necessary.

21. Income tax payable is based (computed) on: Taxable income is the amount upon which income tax payable is computed.

22. Taxable amounts are temporary differences that: Taxable amounts necessitate the recording of a deferred tax liability.

23. Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in FutureTaxable Amounts? Future Deductible Amounts? A. Yes;Yes B. Yes;No C. No;Yes D. No;No Depreciation can result in both future taxable amounts and future deductible amounts.

24. Future deductible amounts will cause: A deferred tax asset is the consequence of future deductible amounts.

25. A deferred tax valuation allowance account is used to recognize a reduction in: A valuation allowance account is established to recognize the reduction in a deferred tax asset.

26. Income tax expense is computed as income tax payable: The change in deferred income taxes should be added to (subtracted from) income tax payable in computing income tax expense.

27. All of the following are examples of temporary differences that result in taxable amounts in future years except: All of the options are examples of future taxable amounts except subscriptions received in advance.

28. Ranger, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 35% in 2011, its first year of operations. During 2011 the company had the following transactions: Received rent from Jennings Co. for 2012 Municipal bond income Depreciation for tax purposes in excess of book depreciation Installment sales revenue to be collected in 2012 $64,000 $80,000 $40,000 $108,000

For 2011, what is the amount of income taxes payable for Ranger, Inc? A. $648,200 B. $603,400 C. $628,600

D. $572,600 $1,800,000 + $64,000 $80,000 $40,000 $108,000 = $1,636,000; $1,636,000 .35 = $572,600.

29. Deferred income taxes are based on the: Future tax rates are used to compute deferred income taxes if they have been enacted into law.