recognized in the taxable income of the period, even if the financial instrument has not beensold.**5. **Tax Deferral and Accruals:****Deferred Tax Assets/Liabilities:** Differences between the tax basis and the financialreporting basis of financial instruments may result in the recognition of deferred tax assets orliabilities.- **Adjustments Over Time:** Deferred tax assets and liabilities are adjusted over time asthe tax consequences of financial instruments are realized or change.**6. **Tax Reporting and Disclosures:****Tax Returns:** Taxpayers must accurately report income, gains, and losses from financialinstruments on their tax returns in compliance with applicable tax laws and regulations.- **Disclosures:** Depending on the jurisdiction and the nature of financial instrumentsheld, taxpayers may be required to provide additional disclosures in their tax filings regardingthe composition and tax treatment of financial instruments.**Fill in the Blanks Question:**In tax accounting for financial instruments, interest income earned on bonds or loans isgenerally taxable in the period it isA) recognizedB) accruedC) realizedD) received **Tax Accounting for Financial Instruments:**Tax accounting for financial instruments involves determining the tax treatment of variousfinancial assets and liabilities, such as stocks, bonds, derivatives, and loans. Here are the keysteps and considerations involved in tax accounting for financial instruments:**1.**Classification of Financial Instruments:**- **Different Categories:** Financial instruments may be classified into various categories,such as trading securities, available-for-sale securities, held-to-maturity securities, and loansheld for investment.- **Tax Treatment:** The tax treatment of financial instruments varies based on theirclassification and the specific tax regulations governing each category.**2. **Recognition of Income and Expenses:**- **Interest Income:** Interest income earned on financial instruments, such as bonds orloans, is generally taxable in the period it is accrued or received, depending on the taxpayer'saccounting method.- **Dividend Income:** Dividend income received from equity investments is subject tospecific tax rates and may qualify for preferential tax treatment under certain circumstances.**3. **Capital Gains and Losses:**- **Realized Gains/Losses:** Gains or losses realized from the sale or disposition of financialinstruments are generally subject to capital gains tax treatment.**Short-term vs. Long-term:** The duration of ownership of the financial instrumentdetermines whether the capital gain or loss is classified as short-term (held for one year orless) or long-term (held for more than one year), with different tax rates applicable to eachcategory.**4. **Mark-to-Market Accounting:****Tax Treatment:** Certain financial instruments, such as marketable securities orwhomarkot pogo ting for taxdorhold bitrad.marke►

Tax accounting for financial instruments involves determining the tax treatment of various financial…

recognized in the taxable income of the period, even if the financial instrument has not been sold. **5. **Tax Deferral and Accruals:** **Deferred Tax Assets/Liabilities:** Differences between the tax basis and the financial reporting basis of financial instruments may result in the recognition of deferred tax assets or liabilities. - **Adjustments Over Time:** Deferred tax assets and liabilities are adjusted over time as the tax consequences of financial instruments are realized or change. **6. **Tax Reporting and Disclosures:** **Tax Returns:** Taxpayers must accurately report income, gains, and losses from financial instruments on their tax returns in compliance with applicable tax laws and regulations. - **Disclosures:** Depending on the jurisdiction and the nature of financial instruments held, taxpayers may be required to provide additional disclosures in their tax filings regarding the composition and tax treatment of financial instruments. **Fill in the Blanks Question:** In tax accounting for financial instruments, interest income earned on bonds or loans is generally taxable in the period it is A) recognized B) accrued C) realized

recognized in the taxable income of the period, even if the financial instrument has not been sold. 5. Tax Deferral and Accruals: Deferred Tax Assets/Liabilities: Differences between the tax basis and the financial reporting basis of financial instruments may result in the recognition of deferred tax assets or liabilities. - Adjustments Over Time: Deferred tax assets and liabilities are adjusted over time as the tax consequences of financial instruments are realized or change. 6. Tax Reporting and Disclosures: Tax Returns: Taxpayers must accurately report income, gains, and losses from financial instruments on their tax returns in compliance with applicable tax laws and regulations. - Disclosures: Depending on the jurisdiction and the nature of financial instruments held, taxpayers may be required to provide additional disclosures in their tax filings regarding the composition and tax treatment of financial instruments. Fill in the Blanks Question: In tax accounting for financial instruments, interest income earned on bonds or loans is generally taxable in the period it is A) recognized B) accrued C) realized

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

recognized in the taxable income of the period, even if the financial instrument has not been
sold.
**5. **Tax Deferral and Accruals:**
**Deferred Tax Assets/Liabilities:** Differences between the tax basis and the financial
reporting basis of financial instruments may result in the recognition of deferred tax assets or
liabilities.
- **Adjustments Over Time:** Deferred tax assets and liabilities are adjusted over time as
the tax consequences of financial instruments are realized or change.
**6. **Tax Reporting and Disclosures:**
**Tax Returns:** Taxpayers must accurately report income, gains, and losses from financial
instruments on their tax returns in compliance with applicable tax laws and regulations.
- **Disclosures:** Depending on the jurisdiction and the nature of financial instruments
held, taxpayers may be required to provide additional disclosures in their tax filings regarding
the composition and tax treatment of financial instruments.
**Fill in the Blanks Question:**
In tax accounting for financial instruments, interest income earned on bonds or loans is
generally taxable in the period it is
A) recognized
B) accrued
C) realized
D) received

**Tax Accounting for Financial Instruments:**
Tax accounting for financial instruments involves determining the tax treatment of various
financial assets and liabilities, such as stocks, bonds, derivatives, and loans. Here are the key
steps and considerations involved in tax accounting for financial instruments:
**1.**Classification of Financial Instruments:**
- **Different Categories:** Financial instruments may be classified into various categories,
such as trading securities, available-for-sale securities, held-to-maturity securities, and loans
held for investment.
- **Tax Treatment:** The tax treatment of financial instruments varies based on their
classification and the specific tax regulations governing each category.
**2. **Recognition of Income and Expenses:**
- **Interest Income:** Interest income earned on financial instruments, such as bonds or
loans, is generally taxable in the period it is accrued or received, depending on the taxpayer's
accounting method.
- **Dividend Income:** Dividend income received from equity investments is subject to
specific tax rates and may qualify for preferential tax treatment under certain circumstances.
**3. **Capital Gains and Losses:**
- **Realized Gains/Losses:** Gains or losses realized from the sale or disposition of financial
instruments are generally subject to capital gains tax treatment.
**Short-term vs. Long-term:** The duration of ownership of the financial instrument
determines whether the capital gain or loss is classified as short-term (held for one year or
less) or long-term (held for more than one year), with different tax rates applicable to each
category.
**4. **Mark-to-Market Accounting:**
**Tax Treatment:** Certain financial instruments, such as marketable securities or
who
markot pogo ting for tax
dor
hold bitrad.
marke
►

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Hi there, Need help with question, thanks!
A valuation allowance for deferred tax assets Select one: a. Is required when future deductible amounts are expected to be applied against future taxable income. b. Requires evidence that it is more likely than not that none of the deferred tax asset will be realized. c. Is a contra asset account shown on the tax return. d. Is likely to be recognized if a company expects losses in early future years.
Which of the following statements concerning the classification of deferred tax assets and liabilities is true? Multiple Choice A deferred tax asset is classified as noncurrent only if the company expects the future tax benefit to be received more than 12 months from the balance sheet date. All deferred tax assets and liabilities are treated as noncurrent. A deferred tax asset related to a bad debt reserve is classified as current if the related accounts receivable is classified as a current asset. A deferred tax asset related to inventory capitalization is classified as noncurrent only if the company uses a FIFO accounting method and the inventory to which the deferred tax asset relates will not be treated as sold within 12 months from the balance sheet date.
2
Expenditures currently deducted in the tax return but not included with expenses in the income statement until subsequent years create deferred tax liabilities. O True O False
Which of the following usually results in an increase in a deferred tax asset? A) Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting. B) Prepaid insurance. C) Subscriptions delivered for which customers had paid in advance. D) None of these answer choices are correct.
Recognition of tax benefits in a loss year due to a loss carryforward requires A) the establishment of a deferred tax liability. B) only a note to the financial statements. OC) the establishment of an income tax receivable. OD) the establishment of a deferred tax asset.
An unused tax loss will arise when: a. Expenses deductible for tax purposes are less than the taxable income b. Expenses deductible for tax purposes exceeds the taxable income. c. Expenses deductible for tax purposes are equal to the taxable income d. Expenses deductible for tax purposes do not exist.
Which of the following causes a temporary difference between taxable and pretax accounting income? A. Investment expenses incurred to generate tax-exempt income. B. MACRS used for depreciating equipment. C. The dividends received deduction. D. Life insurance proceeds received due to the death of an executive.
Valuation allowances reduce deferred tax liabilities to the amount that is more likely than not to be payable in the future. O True False
Nonordinary items resulting in income or loss a. include unusual but not infrequent gains. b. are treated the same as ordinary items when calculating the effective tax rate. c. are always treated as a total group when calculating the effective rate for the quarter. d. are always excluded from interim reporting.