True/False Question 1. A temporary difference originates in one period and reverses, or turns around, in one or more later periods.

2. A deferred tax asset represents the tax effect of the temporary difference between the financial carrying value of an asset or liability and its tax basis. 3. Revenues from installment sales of property reported on financial statements in prior years and currently reported on the tax return create deferred tax assets. 4. Expenditures currently deducted on the tax return but not included with expenses on the income statement until subsequent years create deferred tax liabilities. 5. Future taxable amounts result in deferred tax assets. 6. The basic issue in deciding whether to record a valuation allowance for a deferred tax asset is if probable taxable income is anticipated to be insufficient to realize the tax benefit. 7. Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect. 8. A net operating loss (NOL) carryforward creates a deferred tax liability that should be classified as current to the extent that the NOL will be recovered in the following year. 9. The tax benefit of a net operating loss carried back two years represents a current receivable for income tax to be refunded. 10. The classification of deferred tax assets is sometimes dependent on when the benefit will be realized. Matching Pair Questions Use the following to answer questions 11-15: Terms: A. Deferred tax asset B. Deferred tax liability C. Interperiod tax allocation D. Intraperiod tax allocation E. Operating loss carryback F. Operating loss carryforward G. Permanent difference H. Prior period adjustment I. Taxable income J. Valuation allowance Sentences: 11. ___ Will generate a refund of taxes paid in prior years. 12. ___ Is a process of allocating income tax expense among income from continuing operations, discontinued operations, extraordinary items, etc. 13. ___ Arises when future deductible amounts are created by temporary differences. 14. ___ Reduces the net deferred tax asset and is allocated between current and noncurrent on a pro rata basis. 15. ___ Is the basis for computing the tax liability for taxes currently payable. Use the following to answer questions 16-20: Terms: A. Deferred tax asset B. Deferred tax liability C. Interperiod tax allocation D. Intraperiod tax allocation E. Operating loss carryback F. Operating loss carryforward G. Permanent difference H. Prior period adjustment I. Taxable income

J. Valuation allowance Sentences: 16. ___ Is the process of allocating income taxes among two or more reporting periods by recognizing deferred tax assets and liabilities. 17. ___ Would be either debited or credited to retained earnings net of any tax effect. 18. ___ Arises when future taxable amounts are created by temporary differences. 19. ___ Will always create a deferred tax asset. 20. ___ Is usually a revenue or expense item that is excluded or not deductible in determining taxable income although recognized for financial reporting in the year in which the Use the following to answer questions 21-25: For each situation indicate (by letter) whether it will create, (A) a deferred tax asset, (L) a deferred tax liability, or (N) neither. 21. ____ Research and development costs reported on the income statement but elected to be capitalized and amortized over five years for tax purposes. 22. ____ An operating loss carryforward. 23. ____ Organization costs reported on the income statement but amortized and deducted over five years for tax purposes. 24. ____ Premiums paid on life insurance policies covering key corporate executives. 25. ____ The nondeductible portion of travel and entertainment expenses. Use the following to answer questions 26-30: For each situation indicate (by letter) whether it will create, (A) a deferred tax asset, (L) a deferred tax liability, or (N) neither. 26. ____ An operating loss carryback. 27. ____ Bad debt expense under the allowance method on the income statement, but only allowable under the direct write-off method for taxes. 28. ____ Interest earned on investments in state and local government bonds. 29. ____ Current year contributions not currently deductible due to tax limitations but which can be carried forward to future tax years. 30. ____ Prepaid expenses, tax deductible when paid. Use the following to answer questions 31-35: Terms: A. Balance sheet classification B. Income statement classification C. Income tax expense D. Loss carryback E. Nontemporary difference F. Operating loss G. Phased-in changes in rates H. Tax basis I. Temporary difference J. Valuation allowance Phrases: 31. ___ A "plug" for the net effect of the current tax liability and changes in deferred tax assets and liabilities. 32. ___ No tax consequences. 33. ___ "More likely than not" test. 34. ___ Produces future taxable amounts or future deductible amounts. 35. ___ Same as related asset or liability.