Reading 23 Income Taxes

Question #1 of 67 Question ID: 1378455
For purposes of financial analysis, an analyst should:
A) always consider deferred tax liabilities as stockholder's equity.
B) always consider deferred tax liabilities as a liability.
C) determine the treatment of deferred tax liabilities on a case-by-case basis.
An analyst gathered the following information about a company:
Pretax income = $10,000.
Taxes payable = $2,500.
Deferred taxes = $500.

Tax expense = $3,000.
What is the firm's reported effective tax rate?
A) 25%.
B) 5%.
C) 30%.
Which of the following statements regarding deferred taxes is least accurate?
A) Deferred tax assets and liabilities are not adjusted for changes in tax rates.
A permanent difference is a difference between taxable income and pretax income

B)
that will not reverse.
A deferred tax asset is created when a temporary difference results in taxable

C)
income that exceeds pretax income.
Which of the following factors is least likely to cause a difference between a firm's effective
tax rate and statutory rate?
A) Tax credits.
B) Deductible expenses.
C) Non-deductible expenses.
A firm has deferred tax assets of $315,000 and deferred tax liabilities of $190,000. If the tax
rate increases, adjusting the value of the firm's deferred tax items will:
A) have no effect on income tax expense.
B) increase income tax expense.
C) decrease income tax expense.
A firm purchased a piece of equipment for $6,000 with the following information provided:
Revenue will be $15,000 per year.

The equipment has a 3-year life expectancy and no salvage value.
The firm's tax rate is 30%.
Straight-line depreciation is used for financial reporting and double declining is used
for tax purposes.
Calculate taxes payable for years 1 and 2.
Year 1 Year 2
A) 3,900 3,900
B) 3,300 4,100
C) 600 -200
This year, Blue Horizon has recorded $390,000 in revenue for financial reporting purposes,
but, on a cash basis, revenue was only $262,000. Assume expenses at 50% in both cases (i.e.,
$195,000 on accrual basis and $131,000 on cash basis), and a tax rate of 34%. What is the
deferred tax liability or asset? A deferred tax:
A) asset of $21,760.
B) liability of $16,320.
C) liability of $21,760.
Under which financial reporting standards is the full amount of a deferred tax asset shown
on the balance sheet, regardless of its probability of being realized fully?
A) Neither IFRS nor U.S. GAAP.
B) IFRS, but not U.S. GAAP.
C) U.S. GAAP, but not IFRS.
Which of the following statements best justifies analyst scrutiny of valuation allowances?
If differences in taxable and pretax incomes are never expected to reverse, a

A)
company’s equity may be understated.
B) Changes in valuation allowances can be used to manage reported net income.
Increases in valuation allowances may be a signal that management expects

C)
earnings to improve in the future.

Which of the following statements best describes the impact of a valuation allowance on the
financial statements? A valuation allowance:
A) increases reported income, reduces assets, and reduces equity.
B) reduces reported income, increases liabilities, and reduces equity.
C) reduces reported income, reduces assets, and reduces equity.
Deferred tax liabilities may result from:
A) pretax income greater than taxable income due to permanent differences.
B) pretax income greater than taxable income due to temporary differences.
C) pretax income less than taxable income due to temporary differences.
Under IFRS, deferred tax assets and deferred tax liabilities are classified on the balance
sheet as:
A) current items.
B) noncurrent items.
C) either current or noncurrent items.
A temporary difference between pretax income reported in a firm's financial statements and
taxable income the firm reports to the tax authorities results in:
A) a deferred tax item.
B) a gain or loss in comprehensive income.
C) an adjustment to the firm's effective tax rate.

Which of the following statements regarding deferred taxes is NOT correct?
If deferred tax liabilities are not included in equity, debt-to-equity ratio will be
A)
reduced.
If deferred taxes are not expected to reverse in the future then they should be
B)
classified as equity.
Only those components of deferred tax liabilities that are likely to reverse should be
C)
considered a liability.
A company purchases a new pizza oven for $12,675. It will work for 5 years and have no
salvage value. The company will depreciate the oven over 5 years using the straight-line
method for financial reporting, and over 3 years for tax reporting. If the tax rate for years 4
and 5 changes from 41% to 31%, the deferred tax liability as of the end of year 3 is closest
to:
A) $1,040.
B) $2,080.
C) $1,570.
Which of the following statements regarding differences between taxable and pretax income
is most accurate? Differences between taxable and pretax income that:
A) increase or decrease the effective tax rate are called temporary differences.
B) are not reversed for five or more years are called permanent differences.
C) result in deferred tax assets or liabilities are called temporary differences.

Given the following data regarding two firms under different scenarios, determine the
amount of any deferred tax liability or asset.
Firm 1:
Tax Reporting Financial Reporting
Revenue $500,000 Revenue $500,000
Depreciation $100,000 Depreciation $50,000
Taxable income $400,000 Pretax income $450,000
Taxes payable $160,000 Tax expense $180,000
Net income $240,000 Net income $270,000
Firm 2:
Tax Reporting Financial Reporting
Revenue $500,000 Revenue $500,000
Warranty expense $0 Warranty expense $10,000
Taxable income $500,000 Pretax income $490,000
Taxes payable $200,000 Tax expense $196,000
Net income $300,000 Net income $294,000
Firm 1 Deferred Tax Firm 2 Deferred Tax
A) $30,000 Asset $6,000 Asset
B) $20,000 Liability $4,000 Asset
C) $20,000 Asset $6,000 Liability

Unit Technologies uses accrual basis for financial reporting purposes and cash accounting
for tax purposes. So far this year, Unit Technologies has recorded $195,000 in revenue for
financial reporting purposes, but, on a cash basis, revenue was only $131,000. Assume
expenses at 50 percent in both cases (i.e., $ 97,500 on accrual basis and $ 65,500 on cash
basis), and a tax rate of 34%. What is the deferred tax liability or asset? A deferred tax:
A) liability of $16,320.
B) asset of $10,880.
Corcoran Corp acquired an asset on 1 January 2004, for $500,000. For financial reporting,
Corcoran will depreciate the asset using the straight-line method over a 10-year period with
no salvage value. For tax purposes the asset will be depreciated straight line for five years
and Corcoran's effective tax rate is 30%. Corcoran's deferred tax liability for 2004 will:
A) decrease by $15,000.
B) decrease by $50,000.
C) increase by $15,000.
A health care company purchased a new MRI machine on 1/1/X3. At year-end the company
recorded straight-line depreciation expense of $75,000 for book purposes and accelerated
depreciation expense of $94,000 for tax purposes. Management estimates warranty
expense related to corrective eye surgeries performed in 20X3 to be $250,000. Actual

warranty expenses of $100,000 were incurred in 20X3 related to surgeries performed in
20X2. The company's tax rate for the current year was 35%, but a tax rate of 37% has been
enacted into law and will apply in future periods. Assuming these are the only relevant
entries for deferred taxes, the company's recorded changes in deferred tax assets and
liabilities on 12/31/X3 are closest to:
DTA DTL
A) $55,500 $6,650
B) $55,500 $7,030
C) $52,500 $6,650
A dance club purchases new sound equipment for $25,352. It will work for 5 years and has
no salvage value. For financial reporting, the straight-line depreciation method is used, but
for tax purposes depreciation is 35% of original cost in years 1 and 2 and the remaining 30%
in Year 3. Annual revenues are constant at $14,384 over these five years. If the tax rate for
years 4 and 5 changes from 41% to 31%, what is the deferred tax liability as of the end of
year 3?
A) $2,948.
B) $1,039.
C) $3,144.
A company purchased a new pizza oven for $12,676. It will work for 5 years and has no
salvage value. The tax rate is 41%, and annual revenues are constant at $7,192. For financial
reporting, the straight-line depreciation method is used, but for tax purposes depreciation is
35% of original cost in years 1 and 2 and the remaining 30% in Year 3. For this question
ignore all expenses other than depreciation.
What is the deferred tax liability as of the end of year three?
A) $1,029.
B) $780.
C) $2,079.

Which of the following statements about tax deferrals is NOT correct?
A) A deferred tax liability is expected to result in future cash outflow.
B) Income tax paid can include payments or refunds for other years.
C) Taxes payable are determined by pretax income and the tax rate.
Firm 1 has a deferred tax liability and Firm 2 has a deferred tax asset. If the tax rate
decreases, the balance sheet values of these deferred tax items will:
Firm 1 Firm 2
A) decrease. decrease.
B) increase. decrease.
C) increase. increase.
Fred Company has a deferred tax liability of $1,200,000. If Fred's tax rate increases from 30%
to 40%, the impact of this tax rate change will:
A) increase Fred’s income tax expense by $120,000.
B) increase Fred’s income tax expense by $400,000.
C) decrease Fred’s income tax expense by $120,000.
If timing differences that give rise to a deferred tax liability are not expected to reverse then
the deferred tax:
A) must be reduced by a valuation allowance.

B) should be considered an asset or liability.
C) should be considered an increase in equity.
A company purchased a new pizza oven directly from Italy for $12,676. It will work for 5
years and has no salvage value. The tax rate is 41%, and annual revenues are constant at
$7,192. For financial reporting, the straight-line depreciation method is used, but for tax
purposes depreciation is accelerated to 35% in years 1 and 2, and 30% in year 3. For
purposes of this exercise ignore all expenses other than depreciation.
What is the net income and depreciation expense for year one for financial reporting
purposes?
Net Income Depreciation Expense
A) $4,657 $2,748
B) $2,748 $2,535
C) $2,535 $3,169
Laser Tech has net temporary differences between tax and book income resulting in a
deferred tax liability of $30.6 million. According to U.S. GAAP, an increase in the tax rate
would have what impact on deferred taxes and net income, respectively:
Deferred Taxes Net Income
A) No effect Decrease
B) Increase No effect
C) Increase Decrease
Question ID: 1378503
Question #29 of 67
Year: 2002 2003 2004

Income Statement:
Revenues
after all
expenses $200 $300 $400
other than
depreciation
Depreciation 50 50 50
expense
Income
before
$150 $250 $350
income
taxes
Tax return:
Taxable
income
before $200 $300 $400
depreciation
expense
expense
Taxable
$125 $250 $375
income
Assume an income tax rate of 40%.
The company's income tax expense for 2002 is:
A) $0.
B) $50.
C) $60.

A firm buys an asset with an estimated useful life of five years for $100,000 at the beginning
of the year. The firm will depreciate the asset on a straight-line basis with no salvage value
on its financial statements and will use double declining balance depreciation for tax. The
tax base for this asset at the end of the first year is closest to:
A) $60,000.
B) $40,000.
C) $80,000.
When analyzing a company's financial leverage, deferred tax liabilities are best classified as:
A) a liability or equity, depending on the company's particular situation.
B) a liability.
C) neither as a liability, nor as equity.
Habel Inc. owns equipment with a tax base of $400,000 and a carrying value of $600,000.
Habel also has a tax loss carryforward of $200,000 that is expected to be utilized in the
foreseeable future. Deferred tax items on the balance sheet are based on a tax rate of 30%.
Based only on this information, an increase in future tax rates to 35% will cause Habel's total
equity ratio to:
A) decrease.
B) remain unchanged.
C) increase.

A firm purchased a piece of equipment for $6,000 with the following information provided:
Revenue will increase by $15,000 per year.

The equipment has a 3-year life expectancy and no salvage value.
The firm's tax rate is 30%.
Straight-line depreciation is used for financial reporting and double declining is used
for tax purposes.
What will the firm report for deferred taxes on the balance sheet for years 1 and 2?
Year 1 Year 2
A) $3,300 $4,100
B) $600 $400
C) $3,900 $3,900
Alter Inc. determines that it has $35,000 of accounts receivable outstanding at the end of
20X8. Based on past experience, it recognizes an allowance for bad debt equal to 10% of its
credit sales. The tax base of Alter's accounts receivable at the end of 20X8 is closest to:
A) $3,500.
B) $31,500.
C) $35,000.
A tax rate that has been substantively enacted is used to determine the balance sheet values
of deferred tax assets and deferred tax liabilities under:
A) both IFRS and U.S. GAAP.
B) U.S. GAAP only.
C) IFRS only.
Camphor Associates uses accrual basis for financial reporting purposes and cash basis for
tax purposes. Cash collections from customers is $238,000, and accrued revenue is only
$188,000. Assume expenses at 50% in both cases (i.e., $119,000 on cash basis and $94,000
on accrual basis), and a tax rate of 34%. What is the deferred tax asset/liability in this case? A
deferred tax:
B) asset of $8,500.

Year ending
31 2002 2003 2004
December:
Income Statement:
Revenues
after all
expenses $200 $300 $400
other than
depreciation
expense
Income
before
$150 $250 $350
income
taxes
Tax return:
Taxable
income
before $200 $300 $400
depreciation
expense
expense
Taxable
$125 $250 $375
income
Assume an income tax rate of 40% and zero deferred tax liability on 31 December 2001.
The deferred tax liability to be shown in the 31 December 2003, balance sheet and the 31
December 2004 balance sheet, is:
2003 2004
A) $0 $10
B) $10 $0
C) $25 $20
Kruger Associates uses an accrual basis for financial reporting purposes and cash basis for
tax purposes. Cash collections from customers are $476,000, and accrued revenue is only
$376,000. Assume expenses at 50% in both cases (i.e., $238,000 on cash basis and $188,000
on accrual basis), and a tax rate of 34%. What is the deferred tax asset or liability? A deferred
tax:
B) asset of $17,000.
For a company which owns a majority of the equity of a subsidiary, whether to create a
deferred tax liability for undistributed profits from the subsidiary depends on an "indefinite
reversal criterion" under:
A) both IFRS and U.S. GAAP.
B) IFRS, but not U.S. GAAP.
C) U.S. GAAP, but not IFRS.
Deferred taxes must be recognized for undistributed earnings from an investment in an
associate firm under:
A) neither IFRS nor U.S. GAAP.
B) both IFRS and U.S. GAAP.
C) U.S. GAAP only.

Which of the following financial ratios is least likely to be affected by classification of
deferred taxes as a liability or equity?
A) Return on equity (ROE).
B) Return on assets (ROA).
C) Leverage ratio.
In 20X8, Oliver Ltd. received $80,000 cash from a customer for goods that it could not deliver
until the next year and established a liability for unearned revenue. Oliver reports under U.S.
GAAP, faces a 40% tax rate, and is located in a tax jurisdiction where unearned revenue is
taxed as received. On their balance sheet for 20X8, what change in deferred tax should
Oliver record as a result of this transaction?
A) A deferred tax asset of $32,000.
B) A deferred tax liability of $32,000.
C) There is no effect on deferred tax items from this transaction.
All-Star Enterprises purchased a machine on January 1. The company uses straight-line

depreciation for financial reporting and accelerated depreciation for tax purposes.
Depreciation for tax purposes during the year was $36,000 greater than depreciation for
financial reporting. Assuming a 30% tax rate will apply in the future, how much will be
recorded as a deferred tax liability during the year?
A) $10,800
B) $25,200
C) $36,000

Nespa, Inc., has a deferred tax liability on its balance sheet in the amount of $25 million. A
change in tax laws has increased future tax rates for Nespa. The impact of this increase in
tax rate will be:
A) a decrease in deferred tax liability and an increase in tax expense.
B) a decrease in deferred tax liability and a decrease in tax expense.
C) an increase in deferred tax liability and an increase in tax expense.
If a firm uses accelerated depreciation for tax purposes and straight-line depreciation for
financial reporting, which of the following results is least likely?
A) A permanent difference will result between tax and financial reporting.
B) A temporary difference will result between tax and financial reporting.
C) Income tax expense will be greater than taxes payable.
Which of the following statements is CORRECT? Income tax expense:
A) is the amount of taxes due to the government.
B) includes taxes payable and deferred income tax expense.
C) is the reported net of deferred tax assets and liabilities.

Enduring Corp. operates in a country where net income from sales of goods are taxed at
40%, net gains from sales of investments are taxed at 20%, and net gains from sales of used
equipment are exempt from tax. Installment sale revenues are taxed upon receipt.
For the year ended December 31, 2004, Enduring recorded the following before taxes were
considered:
Net income from the sale of goods was $2,000,000, half was received in 2004 and half
will be received in 2005.
Net gains from the sale of investments were $4,000,000, of which 25% was received in
2004 and the balance will be received in the 3 following years.
Net gains from the sale of equipment were $1,000,000, of which 50% was received in
2004 and 50% in 2005.
On its financial statements for the year ended December 31, 2004, Enduring should apply an
effective tax rate of:
A) 22.86% and increase its deferred tax liability by $1,000,000.
B) 26.67% and increase its deferred tax liability by $1,000,000.
C) 22.86% and increase its deferred tax asset by $1,000,000.
An analyst has gathered the following tax information:
Year 1 Year 2
Pretax Income $60,000 $60,000

Taxable Income $50,000 $65,000
Assume all the differences between pretax income and taxable income are expected to
reverse in the future.
The current tax rate is 40%. The tax rate is reduced to 30% and the change is enacted at the
beginning of Year 2.
In year 1, what are the taxes payable and what is the deferred tax liability (DTL)?
Taxes payable DTL
A) $20,000 $3,000
B) $20,000 $1,500
C) $24,000 $1,500
What is the tax payable for year one?
A) $1,909.
B) $1,130.
C) $779.
For the year ended 31 December 2004, Pick Co's pretax financial statement income was
$400,000 and its taxable income was $300,000. The difference is due to the following:
Interest on tax-exempt municipal bonds $140,000

Premium expense on key person life insurance $(40,000)
Total $100,000
Pick's statutory income tax rate is 30 percent. In its 2004 income statement, what amount
should Pick report as current provision for tax payable?
A) $102,000.
B) $120,000.
C) $90,000.
At the end of 20X8, Martin Inc. estimates that $26,000 of warranty repairs will be required in
the future on goods already sold. For tax purposes, warranty expense is not deductible until
the work is actually performed. The firm believes that the warranty work will be required
over the next two years. The tax base of the warranty liability at the end of 20X8 is:
A) $26,000.
B) $13,000.
C) zero.
Which of the following statements regarding the disclosure of deferred taxes in a company's
balance sheet is most accurate?
A) Deferred tax assets and liabilities are classified as noncurrent.
Current deferred tax liability and noncurrent deferred tax asset are netted, resulting
B)
in the disclosure of a net noncurrent deferred tax liability or asset.
There should be a combined disclosure of all deferred tax assets and liabilities that
C)
are likely to reverse in the current period.
An analyst gathered the following information about a company:
Taxable income = $100,000.
Pretax income = $120,000.

Current tax rate = 20%.
Assuming the difference between taxable income and pretax income will reverse in the
future, the effect these events on the company's financial statements will be to report
income tax expense of:
A) $24,000 and a decrease in deferred tax assets of $4,000.
B) $24,000 and an addition to deferred tax liabilities of $4,000.

C) $22,000 with no change in deferred tax items.
A tax loss carryforward is best described as the:
A) difference between deferred tax liabilities and deferred tax assets.
B) net taxable loss that can be used to recover taxes paid previously.
C) net taxable loss that can be used to reduce taxable income in the future.
For analytical purposes, if a deferred tax liability is expected to not be reversed, it should be
treated as a(n):
A) an addition to equity.
B) immaterial amount and ignored.
C) liability.
While evaluating the financial statements of Omega, Inc., the analyst observes that the
effective tax rate is 7% less than the statutory rate. The source of this difference is
determined to be a tax holiday on a manufacturing plant located in South Africa. This item is
most likely to be:
A) continuous in nature, so the termination date is not relevant.
sporadic in nature, and the analyst should try to identify the termination date and
B)
determine if taxes will be payable at that time.
sporadic in nature, but the effect is typically neutralized by higher home country
C)
taxes on the repatriated profits.
What is the deferred tax liability as of the end of year one?
A) $780.
B) $1,129.
C) $1,909.
Permanent differences between taxable and pretax income:
A) are considered as changes in the effective tax rate.
B) are not addressed specifically in the financial statements.
C) can be deferred in some cases.
A firm needs to adjust its financial statements for a change in the tax rate. Taxable income is
$80,000 and pretax income is $120,000. The current tax rate is 50%, and the new tax rate is
40%. The effect on taxes payable of adjusting the tax rate is closest to:
A) $4,000.
B) $8,000.
C) $16,000.

Both IFRS and U.S. GAAP allow deferred taxes to be:
A) measured using a substantially enacted tax rate.
B) recognized in equity after a fixed asset revaluation.
C) presented as noncurrent on the balance sheet.
Which of the following situations will most likely require a company to record a valuation
allowance on its balance sheet?
To report depreciation, a firm uses the double-declining balance method for tax
A)
purposes and the straight-line method for financial reporting purposes.
A firm has differences between taxable and pretax income that are never expected
B)
to reverse.
A firm is unlikely to have future taxable income that would enable it to take
C)
advantage of deferred tax assets.
Which of the following statements about deferred taxes is most accurate? Deferred tax
liabilities:
A) arise primarily due to differences between financial and tax accounting.
B) can relate to either permanent or temporary differences.
C) should be treated as debt when calculating financial statement ratios.
Which of the following best describes valuation allowance? Valuation allowance is a reserve:
A) created when deferred tax assets are greater than deferred tax liabilities.
against deferred tax liabilities based on the likelihood that those liabilities will be
B)
paid.
against deferred tax assets based on the likelihood that those assets will not be
C)
realized.
The Puchalski Company reported the following:
Year 1 Year 2 Year 3 Year 4
Income before taxes $1,000 $1,000 $900 $800
Taxable income $800 $900 $900 $1,000
The differences between income before taxes and taxable income are the result of using
accelerated depreciation for tax purposes on an asset purchased in Year 1. Puchalski had no
deferred tax liability prior to Year 1. If the tax rate is 40%, what is the amount of the deferred
tax liability reported at the end of Year 4?
A) $40.
B) $80.
C) $120.
Graphics, Inc. has a deferred tax asset of $4,000,000 on its books. As of December 31, it
became more likely than not that $2,000,000 of the asset's value may never be realized
because of the uncertainty of future income. Graphics, Inc. should:
A) reverse the asset account permanently by $2,000,000.
B) not make any adjustments until it is certain that the tax benefits will not be realized.
reduce the asset by establishing a valuation allowance of $2,000,000 against the

C)
asset.
The Puchalski Company reported the following:
Year 1 Year 2 Year 3 Year 4
Income before taxes $1,000 $1,000 $900 $800
Taxable income $800 $900 $900 $1,000
Puchalski has no deferred tax asset or liability prior to Year 1. If the tax rate is 40%, what is
the amount of the deferred tax asset or liability reported at the end of Year 3?
A) Asset of $120.
B) Asset of $80.
C) Liability of $120.
Deferred tax items should be measured based on the:
A) firm’s effective tax rate at the time when the temporary difference reverses.
B) statutory tax rate at the time when the temporary difference is recognized.
C) tax rate that will apply when the temporary difference reverses.

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Question #1 of 67 Question ID: 1378455

For purposes of financial analysis, an analyst should:

A) always consider deferred tax liabilities as stockholder's equity.

B) always consider deferred tax liabilities as a liability.

C) determine the treatment of deferred tax liabilities on a case-by-case basis.

Question #2 of 67 Question ID: 1378502

An analyst gathered the following information about a company:

Pretax income = $10,000.

Taxes payable = $2,500.

Deferred taxes = $500.

What is the firm's reported effective tax rate?

Question #3 of 67 Question ID: 1378488

Which of the following statements regarding deferred taxes is least accurate?

A permanent difference is a difference between taxable income and pretax income

A deferred tax asset is created when a temporary difference results in taxable

Question #5 of 67 Question ID: 1378487

A) have no effect on income tax expense.

B) increase income tax expense.

C) decrease income tax expense.

Question #6 of 67 Question ID: 1378504

Revenue will be $15,000 per year.

Calculate taxes payable for years 1 and 2.

Question #8 of 67 Question ID: 1378509

A) Neither IFRS nor U.S. GAAP.

B) IFRS, but not U.S. GAAP.

C) U.S. GAAP, but not IFRS.

Question #9 of 67 Question ID: 1378497

If differences in taxable and pretax incomes are never expected to reverse, a

B) Changes in valuation allowances can be used to manage reported net income.

Increases in valuation allowances may be a signal that management expects

Question #10 of 67 Question ID: 1378498

financial statements? A valuation allowance:

A) increases reported income, reduces assets, and reduces equity.

B) reduces reported income, increases liabilities, and reduces equity.

C) reduces reported income, reduces assets, and reduces equity.

Question #11 of 67 Question ID: 1378493

Deferred tax liabilities may result from:

A) pretax income greater than taxable income due to permanent differences.

B) pretax income greater than taxable income due to temporary differences.

C) pretax income less than taxable income due to temporary differences.

Question #12 of 67 Question ID: 1378507

C) either current or noncurrent items.

Question #13 of 67 Question ID: 1383101

A) a deferred tax item.

B) a gain or loss in comprehensive income.

C) an adjustment to the firm's effective tax rate.

Which of the following statements regarding deferred taxes is NOT correct?

Question #15 of 67 Question ID: 1378479

Question #16 of 67 Question ID: 1378491

C) result in deferred tax assets or liabilities are called temporary differences.

Tax Reporting Financial Reporting

Revenue $500,000 Revenue $500,000

Depreciation $100,000 Depreciation $50,000

Taxable income $400,000 Pretax income $450,000

Taxes payable $160,000 Tax expense $180,000

Net income $240,000 Net income $270,000

Tax Reporting Financial Reporting

Revenue $500,000 Revenue $500,000

Warranty expense $0 Warranty expense $10,000

Taxable income $500,000 Pretax income $490,000