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Intermediate Accounting, 2/e
Thomas Beechy, York University
Joan E. Conrod, Dalhousie University
OLC Content Author: Clifton Philpott, Kwantlen University College

Accounting for Corporate Income Taxes

Multiple Choice Quiz



1

Why does intraperiod income tax allocation arise?
(CGA FA3-Dec 99)
A)Because income taxes must be allocated between current and future periods
B)Because certain revenues and expenses appear in the financial statements but are excluded from taxable income
C)Because items included in the determination of taxable income may be presented in different sections of the financial statements
D)Because certain revenues and expenses appear in the financial statements either before or after they are included in taxable income
2

According to the CICA Handbook, how should investment tax credits related to the acquisition of capital assets be recorded initially?
(CGA FA3-June 00)
A)As an increase in the accumulated amortization of the asset
B)As a reduction in the cost of the asset
C)As an increase of income tax payable
D)As a reduction of income tax expense
3

Which of the following items creates a permanent difference between accounting income and taxable income?
(CGA FA3-Dec 00)
A)Unearned rent revenue
B)Political contributions
C)Write-down of inventories
D)Estimated bad debt expenses
4

Which of the following temporary differences ordinarily creates a future tax asset?
(CGA FA3-Dec 00)
A)Instalment sales
B)Accrued warranty costs
C)Amortization of goodwill
D)Amortization of computer equipment
5

Which of the following temporary differences ordinarily results in a future tax liability?
(CGA FA3-June 01)
A)Accrued warranty costs
B)Amortization of equipment
C)Subscription revenue collected in advance
D)Unrealized losses on temporary investments
6

What is the rationale for interperiod income tax allocation?
(CGA FA3-Mar 02)
A)To recognize a distribution of earnings to the taxing agency
B)To adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet
C)To recognize a future tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date
D)To reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements
7

When is a tax rate other than the current tax rate used to calculate the future income tax amount on the balance sheet?
(CGA FA3-Mar 02)
A)When the future tax rates have been enacted into law
B)When it is probable that a future tax rate change will occur
C)When it appears likely that a future tax rate will be less than the current tax rate
D)When it appears likely that a future tax rate will be greater than the current tax rate
8

How should future income taxes be presented on the balance sheet?
(CGA FA3-Mar 02)
A)As one net debit or credit amount
B)As reductions of the related asset or liability accounts
C)In two amounts: one for the net debit amount and one for the net credit amount
D)In two amounts: one for the net current amount and one for the net non-current amount
9

The rationale for interperiod income tax allocation is to:
A)recognize a distribution of earnings to Revenue Canada.
B)reconcile the tax consequences of permanent and temporary differences appearing on the current year's financial statements.
C)recognize a future income tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date.
D)adjust income tax expense on the income statement to be in agreement with income taxes payable on the balance sheet.
10

Taxable income of a corporation:
A)differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.
B)is based on generally accepted accounting principles.
C)is reported on the corporation's income statement.
D)differs from accounting income due to differences in intraperiod allocation between the two methods of income determination.
11

Interperiod income tax allocation causes:
A)tax expense in the income statement to be presented with the specific revenues causing the tax.
B)tax expense shown on the income statement to equal the amount of income taxes payable for the current year plus or minus the change in the future tax asset or liability balances for the year.
C)tax expense shown in the income statement to bear a normal relation to the income taxes payable.
D)income taxes payable in the income statement to be presented with the specific revenues causing the tax.
12

Assume that Able Corporation has paid and expensed several speeding fines for its salespeople. Fines are never deductible for tax purposes. This will result in which of the following?
A)Deductible temporary difference and future income tax liability.
B)No temporary difference.
C)Taxable temporary difference and future income tax liability.
D)Taxable temporary difference and future income tax asset.
13

Shelley Corporation's taxable income differed from its pretax financial income computed for this past year. An item that would create a permanent difference in pretax financial and taxable incomes for Shelley is:
A)a balance in the accrued warranty expense account at year end.
B)amortizing goodwill for accounting purposes over 20 years and not amortizing for tax purposes.
C)using accelerated depreciation for tax purposes and straight-line depreciation for accounting purposes.
D)development cost deferred for accounting purposes and deducted for tax purposes.
14

Which of the following situations would require interperiod income tax allocation procedures?
A)Dividends received from a taxable Canadian corporation.
B)Golf membership dues paid and deducted.
C)Life insurance premiums paid for an officer.
D)An excess of CCA over depreciation expense.
15

Jody Corporation recognizes a deduction for tax purposes earlier than it recognizes the related expense for financial statement purposes. This will result in which of the following?
A)Taxable temporary difference and therefore future income tax asset.
B)Taxable temporary difference and therefore future income tax liability.
C)Deductible temporary difference and therefore future income tax asset.
D)Deductible temporary difference and therefore future income tax liability.




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