Chapter 19 Self Study Quiz with Answers

Chapter 19 Self Study Quiz with Answers

ANALYSIS OF MULTIPLE-CHOICE TYPE QUESTIONS

1. (L.O. 2, 3,) A temporary difference arises when a revenue item is reported for tax purposes in a period After it is reported Before it is reported in financial income in financial income a. Yes Yes b. Yes No c. No Yes d. No No

Explanation: Revenue that is taxable after it is recognized in financial income creates a difference between the tax basis of an asset (zero) and its reported amount in the financial statements. This difference will result in a taxable amount in a future period(s) when the reported amount of the asset is settled. (An example situation is when revenue is earned and accrued to a period in advance of the period in which the related cash is collected and taxed. A receivable is reported on a GAAP basis balance sheet until the period in which the cash collection occurs. The cash collection is a taxable event.) Revenue that is taxable before it is recognized in financial income creates a difference between the tax basis of a liability (zero) and its reported amount in the financial statements. This difference will result in a deductible amount in a future period(s) when the reported amount of the related liability is settled. (An example~ situation is when revenue is collected-in a period in advance of the period it is earned. The cash collection triggers a taxable event. Unearned 2. (L.O. 2, 3) Which of the following should be recognized for the amount of deferred tax consequences attributable to temporary differences that will result in deductible amounts in future years? Deferred Tax Asset Deferred Tax Liability a. Yes Yes b. Yes No c. No Yes d. No No

Explanation: A temporary difference giving rise to future deductible amounts requires the recognition of a deferred tax asset for the amount of the future tax consequences related to the existing temporary difference. A temporary difference giving rise to future taxable amounts requires the recognition of a...