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Chapter 19: 1ISTQ (page 1113)

Which of the following is false? (a) Under GAAP, deferred taxes are reported based on the classification of the asset or liability to which it relates. (b) Under IFRS, all potential liabilities must be recognized. (c) Under GAAP, the enacted tax rate is used to measure deferred tax assets and liabilities. (d) Under IFRS, all deferred tax assets and liabilities are classified as non-current.

Short Answer

Expert verified

Non-current liabilities are those business liabilities that expire more than one year. These liabilities are long term loans and advances and are reported under the balance sheet.

Step by step solution

01

Option (a) Under GAAP, deferred taxes are reported based on the classification of the asset or liability to which it relates is the correct answer.

Option a is the correct answer.

02

Reason

As per the GAAP, i.e., Generally Accepted Accounting Principles, the amount of deferred taxes is reported under the liability section of the organization's balance sheet. Deferred tax arises due to the difference in the amount of income tax because of tax laws and the accounting reporting methods used by the firm.

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Most popular questions from this chapter

The pretax financial income (or loss) figures for Jenny Spangler Company are as follows:

2012- $160,000

2013- 250,000

2014- 80,000

2015- 160,000

2016- 380,000

2017- 120,000

2018- 100,000

Pretax financial income (or loss) and taxable income (loss) were the same for all the given years. Assume a 45% tax rate for 2012 and 2013, and a 40% tax rate for the remaining years. Instructions (a) Prepare the journal entries for the years 2014 to 2018 to record the income tax expense and effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler Company using the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

Mitchell Corporation had income before income taxes of \(195,000 in 2017. Mitchell’s current income tax expense is \)48,000, and deferred income tax expense is $30,000. Prepare Mitchell’s 2017 income statement, beginning with Income before income taxes.

Dexter Company appropriately uses the asset-liability method to record deferred income taxes. Dexter reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year. Dexter received rent revenues in advance this year. These revenues are included in this year’s taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability. Instructions (b) How would Dexter account for the temporary differences?

What is an uncertain tax position, and what are the general guidelines for accounting for uncertain tax positions?

Beilman Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.) Year Pretax Income (Loss) Tax Rate 2015 $120,000 40% 2016 90,000 40 2017 (280,000) 45 2018 120,000 45 The tax rates listed were all enacted by the beginning of 2015.Instructions (a) Prepare the journal entries for years 2015–2018 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized. (b) Prepare the income tax section of the 2017 income statement beginning with the line “Operating loss before income taxes.” (c) Prepare the income tax section of the 2018 income statement beginning with the line “Income before income taxes.”
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