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 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.
Which depreciation method is most common for financial reporting? Which depreciation method is most common for tax reporting? Why do companies choose these methods?
Which of the following statements is false? Group of answer choices A realized gain that is never recognized results in the temporary recovery of more than the taxpayer’s cost or other basis for tax purposes. A realized loss on which recognition is postponed results in the temporary recovery of less than the taxpayer’s cost or other basis for tax purposes A realized loss that is never recognized results in the permanent recovery of less than the taxpayer’s cost or other basis for tax purposes. A realized gain on which recognition is postponed results in the temporary recovery of more than the taxpayer’s cost or other basis for tax purposes.
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.
How might a reduction in future tax rates affect deferred tax assets in a way that reduces current net income?
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?
A net operating loss (NOL) carryforward creates: A-a deferred tax liability that should be classified as current liability B- a deferred tax asset that represents future tax benefit that can offset future taxable income O A O B Drouinun
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?
Valuation allowances reduce deferred tax liabilities to the amount that is more likely than not to be payable in the future. O True False
The tax base of a liability is a. Its carrying amount b. The amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. c. Its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods
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

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