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Taxes

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to everyone in the wonderful field of accounting, business
and the study of accounting. Good luck!

This week's quiz brought to you by:
Barbara W. Scofield, PhD, CPA - Associate Professor of Accounting
and Director of the Financial Accounting Concentration
University of Dallas
Irving, Texas



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1 - If corporate tax rates increase, deferred tax liabilities on corporate balance sheets:
will be unaffected.
will increase.
will decrease.
deferred taxes will change, but the direction of change is not predictable.

2 - The source of the largest deferred tax assets for corporations is:
post-retirement health benefits
warranties
revenue collected in advance
accrual of uncollectible accounts expense

3 - The most common source of deferred tax liabililities is:
interest accrual
amortization of intangibles
installment sales
accelerated depreciation

4 - A permanent difference in tax and book income is:
interest on corporate bonds
dividends received on equity method investments
life insurance proceeds
civil penalties

5 - Tax expense is calculated as:
the sum of current tax payable plus the change in deferred taxes.
the sum of current tax payable and the deferred taxes on originating differences
the sum of the change in current deferred taxes plus the change in long-term deferred taxes
taxable income times the appropriate tax rate(s).

6 - The Allowance to Reduce Deferred Tax Assets to Realizable Value account is used:
when it is probable that a company will be able to use a deferred tax asset.
when it is more likely than not that a company will not be able to use the deferred tax asset.
when the likelihood is remote that a company will be able to use its deferred tax assets.
whenever a company has a deferred tax asset.

7 - ABC Company is currently paying a marginal tax rate of 25%, but expects to become more profitable and qualify for a 35% marginal tax rate beginning next year. In addition, Congress is debating an increase to the marginal tax rate for next year, which would increase the 35% rate to 37.5%. Which of the following is true?
Deferred taxes should be measured using the current 25% tax rate.
Deferred taxes should be measured using the expected 35% tax rate.
Deferred taxes should be measured at the rate Congress may enact.
Deferred taxes should be measured at the tax rate in effect when the originating difference occurred.

8 - ABC Company has $10,000 in taxable income, an increase in deferred tax liabilities of $1,000, and a 40% tax rate. What is tax expense?
1,000
3,000
4,000
5,000

9 - ABC Company has a $1,000,000 loss for book and tax purposes in its first year of operations and no other timing differences. The company expects that it will only be able to use 1/2 of its tax loss carryforward and will have a 40% tax rate when it is profitable beginning next year. What is its tax expense?
$200,000 CREDIT
$200,000 DEBIT
$400,000 CREDIT
$400,000 DEBIT

10 - ABC Company has a loss for book and tax purposes of $10,000 in its first year of operations and no other timing differences. It expects to be profitable every year from now on. The marginal tax rate is 40%. What are deferred taxes?
$4000 deferred tax liability
$4000 deferred tax asset.
$10000 deferred tax asset
There are no deferred taxes.