Learning Module 9 Analysis of Income Taxes

Which of the following best describes a temporary difference for income taxes?

A company uses straight-line depreciation for accounting (10-year life) and accelerated tax depreciation over 5 years. On the balance sheet at the end of Year 2, which of the following is most likely?

Which of the following items would most likely be a permanent difference for tax purposes?

How is the income tax expense reported on the income statement generally calculated?

A company has a tax loss carryforward that is expected to be used within 5 years. Under US GAAP, what must the company consider before recognizing a deferred tax asset for the carryforward?

If a country's statutory tax rate falls from 35 percent to 21 percent at year-end, what immediate accounting effect should be expected on a company’s deferred tax balances?

Which tax rate is most appropriate for forecasting a company's future income tax expense on the income statement?

A company shows a large net deferred tax asset but a valuation allowance nearly equal to the gross amount. What does this most likely indicate?

Calculate the deferred tax liability for an asset with carrying amount of 14,000 and tax base of 11,429 given a tax rate of 30 percent.

Which of the following items is typically disclosed in the income tax footnote?

A multinational reports pretax accounting income of 200 and an income tax provision of 50. Its cash taxes paid were 30. What are the company's effective tax rate and cash tax rate?

If a company receives an immediately refundable tax credit from a government for purchasing approved equipment that reduces taxes dollar-for-dollar, how should that credit be classified for accounting vs tax analysis?

Which of the following best describes the tax base of an asset?

A company reports a pretax accounting profit of 10, taxable income of 8, and current tax payments of 2. Deferred tax liability at the beginning of the period was 1 and at the end of the period is 3. What is the income tax expense on the income statement for the period?

Which of the following is the best definition of the cash tax rate?

When should an analyst be most concerned about a deferred tax liability being classified as equity-like rather than debt-like for ratio analysis?

A company reports income before taxes of 100 and reports taxes payable of 30. The change in deferred tax liabilities during the period is an increase of 10. What is the effective tax rate?

Which of the following statements about deferred tax assets is correct?

Which item in the tax footnote would most help an analyst estimate when a company’s deferred tax assets will be realized?

A company reports income before tax of 50, provisions for current tax of (15), and records a deferred tax benefit of 5. What is the effective tax rate?

Which of the following scenarios would produce a deferred tax asset?

Which of the following best explains why an analyst might prefer using the cash tax rate rather than the effective tax rate when forecasting future free cash flow?

Which of the following would most likely cause a company's effective tax rate to be lower than its domestic statutory rate?

A company reports a deferred tax liability related to taxable temporary differences of 300 at year-end. If management expects that none of these temporary differences will reverse for at least 10 years, how should an analyst most appropriately treat this balance for leverage analysis?

Which of the following best describes an unrecognized tax benefit (a tax contingency)?

During Year 1 a firm records a deferred tax asset of 100 related to a deductible temporary difference. At year-end Year 2 the firm records a valuation allowance increase of 40 against that deferred tax asset. What is the most direct effect of that valuation allowance increase on the Year 2 income statement?

Which of the following will reduce a company's deferred tax liability?

A company's consolidated effective tax rate was 40 percent this year while the domestic statutory rate is 35 percent. Which of the following explanations is least likely?

Which of the following is the most appropriate action for an analyst who wants to assess the sustainable, ongoing effective tax rate for use in forecasting?

Which of the following items is most likely disclosed separately as part of deferred tax liabilities in notes to the financial statements?

Which of the following would increase a company’s reported income tax expense this year, all else equal?

Company X has taxable income of 1,000 in Jurisdiction A at 25 percent and 500 in Jurisdiction B at 10 percent. What is Company X's combined statutory-based effective tax rate?

Which of the following statements regarding deferred tax assets and liabilities is correct under IFRS and US GAAP?

When a company reports undistributed earnings of a foreign subsidiary that management intends to reinvest indefinitely, how should deferred taxes on those earnings generally be treated in the consolidated financial statements?

If a company has deferred tax assets arising from net operating loss carryforwards of 1,000 and expects to utilize 400 within the carryforward period based on projected taxable income, what deferred tax asset should it recognize at a 25 percent enacted tax rate (ignoring valuation allowance nuances)?

Which of the following most accurately describes the relationship between the income tax provision on the income statement and cash taxes paid in the period?

A company has gross deferred tax assets of 2,000 and a valuation allowance of 1,200. Which of the following statements is most accurate?

Which of the following is least likely to appear in a company's tax footnote reconciliation from statutory to effective tax rate?

In forecasting a company's cash taxes, which item should an analyst explicitly model to capture the near-term effect of tax timing differences?

A firm's effective tax rate in Year 1 was 10 percent, well below its domestic statutory rate due to large foreign earnings in low-tax jurisdictions. In Year 2 the firm expects most profits to shift back to the domestic market. Which of the following is the best expected outcome for Year 2's effective tax rate?

Which of the following best describes why an analyst reviews a company's deferred tax rollforward disclosure?

When management states that certain foreign earnings are 'indefinitely reinvested,' the firm is most likely asserting what about those earnings?

Which of the following best describes the impact on the statement of cash flows when a company pays cash taxes that relate to prior years (a settlement of prior-year liabilities)?

If an analyst wants to evaluate whether a company’s deferred tax assets are reasonable relative to its balance sheet size, which ratio would be most relevant?

Which disclosure would best allow an analyst to determine whether a company’s low effective tax rate is temporary or structural?

A multinational recognizes interest income in certain low-tax jurisdictions which is tax-exempt locally. For consolidated reporting, how does this most likely affect its effective tax rate?

Which of the following best explains why an analyst would be concerned if a company continually reports an effective tax rate much lower than its peers without clear disclosures?

When a company records an impairment loss on goodwill for accounting purposes, what is the immediate tax accounting effect in most jurisdictions?

Which disclosure would help an analyst evaluate the potential future tax cash outflows associated with deferred tax liabilities?

A company has taxable income higher than accounting profit this year because certain revenues are taxable now but recognized in accounting later. What is the immediate accounting consequence?