1. The amount of income taxes that relate to financial income subject to tax is reported on the income statement as A. long-term deferred income taxes (credit) C. income tax expense B. current deferred income taxes (debit) D. income tax payable 2. An item that would create a permanent difference in pretax financial and taxable income would be A. using accelerated depreciation for tax purposes & straight line depreciation for book purposes. B. using the percentage of completion method on long-tem construction contracts. C. purchasing equipment previously leased with an operating lease in prior years. D. paying fines for violation of laws. 3. Which of the following is the most likely item to result in a deferred tax asset? A. using completed contract method of recognizing construction revenue tax purposes, but using percentage of completion method for financial reporting purposes. B. using accelerated depreciation for tax purposes but straight-line depreciation for accounting purposes. C. unearned revenues D. prepaid expenses.

1. The amount of income taxes that relate to financial income subject to tax is reported on the income statement as A. long-term deferred income taxes (credit) C. income tax expense B. current deferred income taxes (debit) D. income tax payable 2. An item that would create a permanent difference in pretax financial and taxable income would be A. using accelerated depreciation for tax purposes & straight line depreciation for book purposes. B. using the percentage of completion method on long-tem construction contracts. C. purchasing equipment previously leased with an operating lease in prior years. D. paying fines for violation of laws. 3. Which of the following is the most likely item to result in a deferred tax asset? A. using completed contract method of recognizing construction revenue tax purposes, but using percentage of completion method for financial reporting purposes. B. using accelerated depreciation for tax purposes but straight-line depreciation for accounting purposes. C. unearned revenues D. prepaid expenses.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

1. The amount of income taxes that relate to financial income subject to tax is reported on the income
statement as
A. long-term deferred income taxes (credit) C. income tax expense
B. current deferred income taxes (debit)
D. income tax payable
2. An item that would create a permanent difference in pretax financial and taxable income would be
A. using accelerated depreciation for tax purposes & straight line depreciation for book purposes.
B. using the percentage of completion method on long-term construction contracts.
C. purchasing equipment previously leased with an operating lease in prior years.
D. paying fines for violation of laws.
3. Which of the following is the most likely item to result in a deferred tax asset?
A. using completed contract method of recognizing construction revenue tax purposes, but using
percentage of completion method for financial reporting purposes.
B. using accelerated depreciation for tax purposes but straight-line depreciation for accounting
purposes.
C. unearned revenues
D. prepaid expenses.

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