4When should a company create a valuation allowance for a deferred tax asset?O When taxable income is greater than reported incomeO When there is less than a 50% probability that a company will fail to realize a portion of the assetO When there is more than a 50% probability that a company will fail to realize a portion of the assetO When reported income is greater than taxable incomeW

Deferred tax asset is the amount of taxes which are paid in advance due to difference in reported…

Answered: When should a company create a…

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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Which depreciation method is most common for financial reporting? Which depreciation method is most common for tax reporting? Why do companies choose these methods?
Statement 1: Permanent differences result in deferred tax assets and deferred tax liabilities. Statement 2: Deferred tax assets should be reported as current if these will reverse in the next twelve months. Statement 3: If the carrying amount of an asset is higher than the tax base, the difference will result in deferred tax liability. Statement 4: Operating loss carryforward occurs when an entity has a negative taxable income. Statement 5: Rent collected in advance shall be taxable when earned. Which of the statement/s are false?
Which of the following temporary differences will most likely result in a deferred tax liability O Depreciating a new asset using units of production for GAAP and straight line for tax O Collecting rental income in advance O Sales with multiple obligations delivered and paid for over multiple periods O Paying utility bills in advance A
Using the fundamental principle from IAS 12 Income Tax, explain whether a deferred tax asset or a deferred tax liability should be recognised in relation to the following scenarios. 1. Development costs Development costs of $1000 that are recognised as an asset (i.e. capitalised) and will be amortised to the statement of P/L and OCI. The costs were deducted in determining taxable profit when they were incurred (i.e. when the cash was paid). 2. Trade Receivables Carrying amount of trade receivables is $150. The $150 is net of expected doubtful debts of $50.
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.
Explain when a firm may recognize a deferred tax asset under SFAS No. 109. Howshould deferred tax assets that are not expected to be realized be accounted for?
When a company records a deferred tax asset, it may need to also report a valuation allowance if it is “more likely than not” that some portion or all of the deferred tax asset will not be realized. Required:Access the FASB Accounting Standards Codification at the FASB website. What is the specific nine-digit Codification citation (XXX-XX-XX-XX) that describes the guidelines for determining the disclosure requirements pertaining to how a firm should determine whether a valuation allowance for deferred tax assets is needed?
1. Which temporary difference would result in a deferred tax asset? a. Tax penalty or surcharge b. Dividend received on share investment c. Excess tax depreciation over accounting depreciation d. Rent received in advance included in taxable income but deferred for financial accounting 2. The deferred tax expense is the a. Increase in deferred tax asset minus the increase in deferred tax liability. b. Increase in deferred tax liability minus the increase in deferred tax asset. c. Increase in deferred tax asset plus the increase in deferred tax liability. d. Decrease in deferred tax asset minus the increase in deferred tax liability.
Valuation allowances reduce deferred tax liabilities to the amount that is more likely than not to be payable in the future. O True False
A company determines that it is more likely than not that a portion of a deferred tax asset will not be realized. Due to the value of the beginning of the period balance, this determination caused a valuation allowance account to decrease during the current period. This situation will cause Income Tax Expense to decrease. O True O False
A net operating loss occurs when tax-deductible expenses exceed taxable revenues. Tax laws permit the net operating loss to be used to reduce taxable income in other, profitable years by either a carryback of the loss to prior years or a carryforward of the loss to later years. How are loss carrybacks and loss carryforwards recognized for financial reporting purposes?

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