SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY

Accountancy Department
Review in FINANCIAL ACCOUNTING AND REPORTING, Part 2
Take-Home Assessment No. 2

Instruction: The following items are mix of “True or False” questions, multiple choice questions,
identification, and straight problems. For “True or False” questions, write the word TRUE if the statement
is correct, otherwise write FALSE. For MCQs, choose the letter of your choice that best corresponds to the
best answer. For straight problems, supporting computations are required to be presented. GODBLESS!
#CPADream # KeepTheFaith

You can place your answers in a:

a. Clean sheet of paper and take a picture of it

after;
b. Microsoft Word File; or
c. Microsoft Excel File.

Please e-mail your answers at

gab.berbano@gmail.com

Name your file as shown “Code_Last Name, Given

Name_employee benefits.”

Submission is until Wednesday, April 8, 2020,

6:00AM, Philippine Standard Time.

1. Non-taxable revenues are added to, and

nondeductible expenses are deducted from, 6. Estimated warranty liabilities are deductible
financial income to determine the income that is on the tax return prior to being reported in the
subject to tax. income statement.

2. Current tax laws in the Philippines require a 7. Permanent differences between financial and
3-year carryback of net operating losses. taxable income do not create any accounting or
reporting problems.
3. Current tax laws in the Philippines permit a
3-year carry forward of net operating losses. 8. PAS 12, Income Taxes requires reporting
entities to use the asset and liability method of
4. “Unrealized Losses on held for trading for accounting for income taxes.
trading securities” result in lower taxable 9. Rent revenue received in advanced is
income than financial accounting income. recognized as revenue for financial reporting
purposes prior to its recognition for tax
5. The government uses the income tax laws purposes.
for raising tax revenues and for implementing
fiscal policy.
10. The benefit that arises from the use of net 16. Which of the following is the best
operating loss carryforwards is used to reduce description of the current PFRS approach to
the tax payment in the current period. inter-period tax allocation?
A. Partial allocation
B. The asset-liability method
11. All of the following can result in a C. The enacted method
temporary difference between pretax financial D. An application of the matching concept
income and taxable income except for
A. payment of premiums for life insurance. 17. According to PAS 12, deferred tax assets
B. depreciation expense. and liabilities should be reported in the balance
C. provision for pending lawsuits. sheet
D. product warranty costs. A. As noncurrent asset and noncurrent
liability
12. A pretax income always results when B. Always net noncurrent asset or net
A. Revenues exceed operating expenses noncurrent liability
B. Revenues exceed the cost of goods sold C. As current and noncurrent depending
C. The gross margin exceeds operating on the order of liquidity or maturity
expenses D. As current and noncurrent assets and
D. The cost of goods sold exceeds operating liabilities depending on the balance sheet
expenses classification of the related tax basis of the
temporary difference
13. Which of the following differences
would result in future taxable amounts? 18. A deferred tax liability uses
A. Revenues or gains that are taxable before A. Current tax laws, unless enacted
they are recognized in financial income future tax laws are different
B. Expenses or losses that are deductible after B. The current tax laws, regardless of
they are recognized in financial income expected or enacted future tax laws
C. Expenses or losses that are deductible C. Expected future tax laws, regardless
before they are recognized in financial of whether those expected laws have been
income enacted
D. Revenues or gains that are recognized in D. Either current or expected future tax
financial income but are never included in laws, regardless of whether those expected laws
taxable income have been enacted.

14. A temporary difference that would 19. Which of the following statements is correct
result in a deferred tax asset is regarding the provision for income taxes in the
A. Accrued warrant expense financial statement of a sole proprietorship?
B. Accrual commission income A. No provision for income taxes is required
C. Interest revenue on government bonds B. The provision for income taxes should be
D. Excess of tax depreciation over financial based on business income using corporate tax
accounting depreciation rates
C. The provision for income taxes should be
15. Current tax expense plus deferred tax based on business income using individual tax
expense is rates
A. A meaningless sum D. The provision for incomes taxes should be
B. tax deductible expense based on the proprietor’s total taxable income
C. Income tax expense allocated to the proprietorship at the percentage
D. none of these that business income bears to the proprietor’s
total income
 20. The following are based on PAS 12 (Income 20x3 25%
Taxes)
Statement I: A deferred tax asset shall be 21. In Bee's 20x0 income statement, the
recognized for the carry forward to unused tax current portion of its provision for income taxes
losses and unused tax credits to the extent that it should be
is probable that future taxable profit will be 22. In Bee's 20x0 financial statements, the
available against which the unused tax losses deferred portion of its provision for income
and unused tax credits can be utilized taxes should be
Statement II:Current tax liabilities (assets) for
the current and prior periods shall be measured 23. In its December 31, 20x0 balance sheet,
at the amount expected to be paid (recovered Quinn Co. reported a deferred tax asset of
from) the taxation authorities, using the tax rates ₱9,000 and no deferred tax liability. For 20x1,
(and tax laws) that have been enacted or Quinn reported pretax financial statement
substantially enacted by the end of the reporting income of ₱300,000. Temporary differences of
period ₱100,000 resulted in taxable income of
Statement III: Deferred tax assets and ₱200,000 for 20x1. At December 31, 20x1,
liabilities shall be measured at the tax rates that Quinn had cumulative taxable differences of
are expected to apply to the period when the ₱70,000. Quinn's effective income tax rate is
asset is realized or the liability is settled, based 30%. In its December 31, 20x1, income
on tax rates (and tax laws) that have been statement, what should Quinn report as deferred
enacted or substantively enacted by the end of income tax expense?
the reporting period.
A B C 24. On its December 31, 20x1, balance
D The sheet, Shin Co. had income taxes payable of
Statement I True True True next ₱13,000 and a deferred tax asset of ₱20,000
False
Statement II True True False two before determining the need for a valuation
True items account. Shin had reported a deferred tax asset
Statement III True False True are of ₱15,000 at December 31, 20x0. No estimated
True
based tax payments were made during 20x1. At
on the following: December 31, 20x1, Shin determined that it was
Bee Corp. prepared the following reconciliation more likely than not that 10% of the deferred tax
between book income and taxable income for asset would not be realized. In its 20x1 income
the year ended December 31, 20x0: statement, what amount should Shin report as
Pretax accounting income 500,000 total income tax expense?
Taxable income 300,000
Difference 200,000 25. Taft Corp. uses the equity method to
account for its 25% investment in Flame, Inc.
Interest on municipal bonds 50,000 During 20x1, Taft received dividends of
Lower depreciation per ₱30,000 from Flame and recorded ₱180,000 as
financial statements 150,000 its equity in the earnings of Flame. Additional
Total differences information follows:
 All the undistributed earnings of Flame will
Bee's effective income tax rate for 20x0 is 30%. be distributed as dividends in future periods.
The depreciation difference will reverse equally  The dividends received from Flame are
over the next three years at enacted tax rates as eligible for the 80% dividends received
follows: deduction.
 There are no other temporary differences.
Years Tax rates  Enacted income tax rates are 30% for 20x1
20x1 30% and thereafter.
20x2 25%
In its December 31, 20x1, balance sheet, what 20x4 100,000
amount should Taft report for deferred income The enacted income tax rates are 25% for 20x0,
tax liability? 30% for 20x1 through 20x3, and 35% for 20x4.
Black believes that future years' operations will
26. Bishop Corporation began operations in produce profits. In its December 31, 20x0,
20x7 and had operating losses of ₱200,000 in balance sheet, what amount should Black report
20x7 and ₱150,000 in 20x8. For the year ended as deferred tax asset?
December 31, 20x9, Bishop had pretax book
income of ₱300,000. For the three-year period 30. Rom Corp. began business in 20x1 and
20x7 to 20x9, assume an income tax rate of 40% reported taxable income of ₱50,000 on its 20x1
and no permanent or temporary differences tax return. Rom's enacted tax rate is 30% for
between book and taxable income. In Bishop’s 20x1 and future years. The following is a
20x9 income statement, how much should be schedule of Rom's December 31, 20x1,
reported as total income tax expense? temporary differences in thousands of dollars:

The next two items are based on the following:   Future taxable (deductible)
Venus Corp.’s worksheet for calculating current   amounts
12/31/x1 Carrying
and deferred income taxes for 20x2 follows: amount over (under) 20x 20 20x
Tax base 2 20x3 x4 5
  20x2 20x3 20x4 Equipment 10 (5) 5 5 5
Pretax Warranty
liability (20) (10) (10)
income 1,400 Deferred
Temporary compensati
differences: on
liability (15) (5) (10)
Installment
Depreciation (800) (1,200) 2,000 receivables 30 10 20
Warranty Totals 5 (5) (10) 25 (5)
costs 400 (100) (300)
Taxable What amount should Rom report as total
income 1,000 (1,300) 1,700 deferred tax asset in its December 31, 20x1,
balance sheet?
Enacted rate 30% 30% 25%
An entity prepared the following reconciliation
Venus had no prior deferred tax balances. In its for 2019, its first year of operations:
20x2 income statement, what amount should
Venus report as: Pretax financial income for 1,200,000
2019
Tax exempt interest (100,000)
27. Current income tax expense? Temporary Difference (300,000)
28. Deferred income tax expense? Taxable Income 800,000

29. Black Co., organized on January 2, The temporary difference will reverse evenly
20x0, had pretax financial statement income of over the next two years at an enacted tax rate of
₱500,000 and taxable income of ₱800,000 for 25% and 20% for the years 2020 and 2021,
the year ended December 31, 20x0. The only respectively. The enacted tax rate for 2019 is
temporary differences are accrued product 30%.
warranty costs, which Black expects to pay as
follows: 31. What is the deferred tax asset or liability
20x1 ₱100,000 on December 31, 2019?
20x2 50,000 32. What is the total tax expense for 2019?
20x3 50,000
An entity reported the following selected
information for the current year:

Accounting income before tax 9,700,000

Interest Income on tax-exempt 300,000
Municipal Bonds
Depreciation claimed on the 500,000
tax return in excess of financial
depreciation
Carrying amount of 800,000
depreciable asset in excess of
tax basis
Warranty expense reported on 200,000
the income statement
Actual warranty expenditures 50,000

The income tax rate is 30%. At the beginning of

the current year, the entity reported deferred tax
asset at zero and deferred tax liability at
P90,000.

33. What is the current tax expense for the

current year?
34. What is the total expense for the current
year?
35. What is the deferred tax liability at year-
end?
36. What is the deferred tax asset at year-
end?