Identify The Choice That Best Completes The Statement or Answers The Question
Identify The Choice That Best Completes The Statement or Answers The Question
Identify The Choice That Best Completes The Statement or Answers The Question
____ 6. It is the deferred tax consequence attributable to 14. Which statement is incorrect concerning tax assets and
a taxable temporary difference. liabilities?
a. Deferred tax liability c. Current tax liability
a. Deferred tax assets and liabilities shall be discounted.
b. Deferred tax asset d. Current tax asset
b. Tax assets and liabilities shall presented separately from
other assets and liabilities in the statement of financial
position.
____ 7. It is the deferred tax consequence attributable to c. Deferred tax assets and liabilities shall be distinguished
a deductible temporary difference and operating from current tax assets and liabilities.
d. When an entity makes a distinction between current and
loss carryforward. noncurrent assets and liabilities, it shall not classify
a. Deferred tax liability c. Current tax liability deferred tax assets and liabilities as current.
b. Deferred tax asset d. Current tax asset
II. The tax base for a machine for tax purposes is
____ 15. An entity shall offset a deferred tax asset and deferred tax
liability when greater than the carrying amount in the
I. The deferred tax asset and deferred tax liability relate to financial statements up to the end reporting
income taxes levied by the same taxing authority.
period. This will give rise to a deferred tax
II. The entity has a legal enforceable right to
asset.
offset a current tax asset against a current tax a. I only c. Both I and II
liability. b. II only d. Neither I nor II
a. I only c. Both I and II
b. II only d. Neither I nor II
21. Justification for the method of determining
____ 16. The following statements relate to deferred tax assets or periodic deferred tax expense is based on the
liabilities. Which statement is true? concept of
I. Deferred tax liabilities are the amounts of income taxes a. Matching of periodic expense to periodic revenue.
payable in future periods in respect of taxable temporary b. Objectivity in the calculation of periodic expense.
differences. c. Recognition of assets and liabilities.
II. Deferred tax assets are the amounts of income taxes d. Consistency of tax expense measurement with actual tax
recoverable in future periods in respect of deductible planning strategies.
permanent differences.
a. I only c. Both I and II
b. II only d. Neither I nor II 22. Which of the following differences would result in
future taxable amount?
a. Expenses or losses that are deductible after they are
____ 17. Deferred tax assets are the amount of income recognized in accounting income.
taxes recoverable in future periods in respect of b. Revenues or gains that are taxable before they are
a. The carryforward of unused tax losses only recognized in accounting income.
b. Taxable temporary differences and carryforward of unused c. Expenses or losses that are deductible before they are
tax losses recognized in accounting income.
c. Deductible temporary differences and carryforward of d. Revenues or gains that are recognized in accounting
unused tax losses income but are never included in taxable income.
d. Permanent differences
____ 28. At the most recent year-end, an entity had a 33. Which of the following is an example of a temporary difference
deferred tax liability arising from accelerated that would result in a deferred tax liability?
depreciation that exceeded a deferred asset a. Use of straight line depreciation for accounting purposes
relating to rent received in advance which is and an accelerated rate for income tax purposes.
b. Rent revenue collected in advance when included in
expected to reverse in the next year. Which of the taxable income before it is included in pretax accounting
following shall be reported in the entity’s most income.
c. Use of a shorter depreciation period for accounting
recent year-end statement of financial position? purposes than is used for income tax purposes.
a. The excess of the deferred tax liability over the deferred tax d. Investment losses recognized earlier for accounting
asset as a noncurrent liability. purposes than for tax purposes.
b. The excess of the deferred tax liability over the deferred tax
asset as a current liability.
c. The deferred tax liability as a noncurrent liability. 34. Which of the following is the most likely item to result in a
d. The deferred tax liability as a current liability.
deferred tax asset?
a. Using accelerated depreciation for tax purposes but
straight line depreciation for accounting purposes
____ 29. An entity’s financial reporting basis of its plant b. Using the cost recovery revenue method of recognizing
assets exceeded the tax basis because it uses a construction revenue for tax purposes but using percentage
of completion method for financial reporting purposes
different method of reporting depreciation for c. Prepaid expense
financial reporting purposes and tax purposes. If it d. Unearned revenue
has no other temporary differences, the entity
shall report a 35. An example of a “deductible temporary
a. Current tax asset c. Deferred tax liability
b. Deferred tax asset d. Current tax payable difference” occurs when
a. The installment sales method is used for tax purposes but
the accrual method of recognizing sales revenue is used
for financial accounting purposes.
____ 30. A deferred tax liability is computed using b. Accelerated depreciation is used for tax puposes but
a. Current tax law regardless of expected or enacted future straight line depreciation is used for accounting purposes.
tax law. c. Warranty expenses are recognized on the accrual basis for
b. Expected future tax law regardless of whether enacted or financial accounting purposes but recognized for tax
not. purposes as the warranty conditions are met.
d. The cost recovery method of recognizing construction 42. A provision shall be recognized as liability when (choose the
revenue is used for tax purposes but the percentage of incorrect one)
completion method is used for financial accounting
purposes. a. An entity has a present obligation as a result of a past event.
b. It is probable that an outflow of resources embodying economic
benefits will be recquired to settle the obligation.
____ 36. A deferred tax liability arising from the use of an c. It is possible that an outflow of resources embodying economic
benefits will be required to settle the obligation.
accelerated method of depreciation for tax d. The amount of the obligation can be measured reliably.
purposes and the straight line method for
financial reporting purposes would be classified in 43. A constructive obligation is an obligation
the statement of financial position as
a. A current liability I. Arising from contract, legislation or operation of law.
b. A noncurrent liability
c. A current liability for the portion of the temporary difference II. That is derived from an entity’s action that the entity will accept
reversing within a year and a noncurrent liability for the certain responsibilities because of past practice, published
remainder policy or current statement and as a result, the entity has created
d. An offset to the accumulated depreciation reported in the a valid expectation in other parties that it will discharge those
statement of financial position responsibilities.
a. The probability that the event will occur is greater than the
____ 38. Recognizing tax benefit in a loss year due to a loss probability that the event will not occur.
b. The probability that the event will not occur is greater than the
carryforward requires probability that the event will occur.
a. Only a footnote disclosure. c. The probability that the event will occur is the same as the
b. Creating a new carryforward for the next year. probability that the event will not occur.
c. Creating a deferred tax asset. d. The probability that the event will occur is 90% likely.
d. Creating a deferred tax liability.
____ 40. In computing the change in deferred tax asset or a. Expected value c. Current value
b. Present value d. Extrapolation
liability, which tax rate is used?
a. Current tax rate c. Enacted future tax rate
b. Estimated future tax rate d. Prior tax rate 48. Which statement is incorrect in the measurement of a provision?
a. Recognize a provision for the current year equal to the estimated 66. Which of the following should be disclosed in the financial
amount. statements as a contingent liability?
b. Recognize a provision for the current year equal to one-half only
of the estimated amount. a. The entity has accepted liability prior to the year-end for unfair
c. No provision is recognized at year-end because there is no dismissal of an employee and is to pay damages.
present obligation for the future expenditure since the entity can b. The entity has received a letter from a supplier complaining
avoid the future expenditure by changing the method of about an old unpaid invoice.
operations but disclosure is required. c. The entity is involved in a legal case which it may possibly lose,
d. Ignore this for purposes of the financial statements at year-end. although this is not probable.
d. The entity has not yet paid certain claims under sales warranties.
a. Probable 75. At year-end, an entity was a competitor for patent infringement. The
b. Reasonably possible award from the probable favorable outcome could be reasonably
c. Certain estimated. The entity’s financial statements shall report the expected
d. Remote award as
a. Receivable and revenue
b. Receivable and reduction of patent
____ 69. An entity did not record an accrual for a present obligation but c. Receivable and deferred revenue
disclose the nature of the obligation and the range of the loss. How d. Disclosure only
likely is the loss?
a. Remote c. Probable 76. Contingent liabilities will or will not become actual liabilities
b. Reasonably possible d. Certain depending on
a. As a deferred liability
____ 72. Which of the following is the proper accounting treatment of a b. As an accrued liability
contingent asset? c. As a disclosure only
d. As an account payable with an additional disclosure explaining
a. An accrued account the nature of the transaction
b. Deferred earnings
c. An account receivable with an additional disclosure explaining
the nature of the transaction 79. Disclosure usually is not required for
d. A disclosure only
a. Contingent gains that are probable and can be reasonably
estimated.
____ 73. When the occurrence of a contingent asset is probable and its amount b. Contingent losses that are reasonably possible and cannot be
can be reasonably estimated, the contingent asset shall be reasonably estimated.
c. Contingent losses that are probable and cannot be reasonably
a. Recognized in the statement of financial position and disclosed. estimated.
b. Classified as an appropriation of retained earnings. d. Contingent losses that are remote and can be reasonably
c. Disclosed but not recognized in the statement of financial estimated.
position.
d. Neither recognized in the statement of financial position nor
disclosed. 80. Which of the following liabilities is not contingent?
____ 85. On January 31, 2009 an explosion occurred at an entity’s plant 91. Under a royalty agreement with another entity, a entity will receive
causing extensive property damage to area buildings. Although no royalties from the assignment of a patent for four years. The royalties
claims had yet been assertes against the entity by March 15,2010, the received in advance shall be reported as revenue
entity’s management and counsel concluded that it is likely that a. In the period received
claims will be asserted and that it is reasonably possible the entity b. In the period earned
will be responsible for damages. The management believed that c. Evenly over the life of the royalty agreement
P1,250,000 would be reasonable estimate of its liability. The entity’s d. At the date of the royalty agreement
P5,000,000 comprehensive public liability policy has a P250,000
deductible clause. In the December 31, 2009 financial statements
which were issued on March 31, 2010, how should this item be 92. In June of the current year, an entity sold refundable merchandise
reported? coupons. The entity received a certain amount for each coupon
redeemable from July 1 to December 31 of the current year, for
a. As an accrued liability of P250,000 merchandise with a certain retail price. At June 30 of the current year,
b. As a footnote disclosure indicating the possible loss of P250,000 how should the entity report these coupon transactions?
c. As a footnote disclosure indicating the possible loss of
P1,250,000 a. Unearned revenue at the merchandise’s retail price.
d. No footnote disclosure or accrual is necessary b. Unearned revenue at the cash received
c. Revenue at the merchandise’s retail price
d. Revenue at the cash received
____ 86. A retail store received cash and issued gift certificates that are
redeemable in merchandise. The gift certificates lapse one year after
they are issued. How would the deferred revenue account be affected 93. How would the proceeds received from the advance sale of
by each of the following transactions? nonrefundable tickets for a theatrical performance be reported in the
seller’s financial statements before the performance?
a. Premium offer to customers for labels or box tops
b. Acommodation endorsement on customer note a. Revenue for the entire proceeds
c. Additional compensation that may be payable on a dispute now b. Revenue to the next extent of related costs expended
c. Unearned revenue to the extent of related costs expended
d. Unearned revenue for the entire proceeds
a. None
b. Deferred revenue equal to 60% of the main contract price and
payable to subcontractor equal to 40% of the main contract price.
c. Deferred revenue equal to 60% of the main contract price and no
payable to subcontractor.
d. No deferred revenue but payable to subcontractor is reported at
40% of the main contract price.
____ 95. An entity sells appliances that include a three-year warranty. Service
calls under the warranty are performed by an independent mechanic
under a contract with the entity. Based on experience, warranty costs
are expected to be incurred for each machine sold. When should the
entity recognize these warranty costs?
82. A 89. C
83. A 90. A
84. B 91. B
85. B 92. B
86. A 93. D
87. B 94. C
95. D