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7277 - Deferred Income Tax

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47 views2 pages

7277 - Deferred Income Tax

Uploaded by

shane cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CPA REVIEW SCHOOL FOF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS


MAY 2024 CPALE BATCH 95

DEFERRED INCOME TAX

1. An entity reported pretax financial income of P7,200,000 for the current year. Included in other income
was P200,000 of tax-exempt interest revenue from government bonds held by the entity. The income
statement included depreciation expense of P1,000,000 for a machine and the income tax return reported
P1,500,000 as depreciation on the machine. The enacted tax rate is 25% for the current year and future
years.
I. The current tax expense is equal to taxable income multiplied by tax rate.
II. Deferral tax liability is the amount of income tac payable in future periods with respect to taxable
temporary difference or future taxable amount which arises when accounting income subject to tax
is higher than taxable income
III. The current tax expense is P1,625,000.
IV. The deferred tax liability is P125,000.
a. All statements are true
b. All statements are not true
c. Only three statements are true
d. Only two statements are true

2. During the current year, an entity reported pretax financial income of P6,000,000. Included in the pretax
financial income are P1,000,000 of nontaxable life insurance proceeds received as a result of the death
of an officer, P1,800,000 of estimated warranty expense accrued at year-end and P200,000 of life
insurance premiums for a policy for an officer. No income tax was previously paid during the year and
the income tax rate is 25%.
I. The total tax expense is equal to financial income subject to tax multiplied tax rate.
II. Deferred tax asset is the amount of tax recoverable in future periods with respect to deductible
temporary difference or future deductible amount which arises when taxable income is higher than
accounting income subject to tax
III. The total tax expense is P1,300,000
IV. The deferred tax asset is P450,000.
a. All statements are true
b. All statements are false
c. Only statements I are II are true
d. Only statements III and IV are true

3. At the end of the first year of operations, an entity had taxable temporary differences totaling P1,500,000.
The entity also had deductible temporary differences totaling P500,000. Pretax financial income for the
current year was P8,500,000. The income tax rate is 25%.
I. The difference between increase in deferred tax liability and increase in deferred tax asset is either
net deferred tax expense or net deferred tax benefit
II. The total tax expense is P2,125,000
III. The current tax expense is P1,875,000
IV. The net deferred tax expense is P250,000.
a. All statements are true
b. All statements are false
c. Only statements II and III are true
d. Only statement IV is false.

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4. An entity was organized on January 1, 2024. The entity had pretax accounting income of P6,000,000 and
taxable income of P9,000,000 for the current year. The only temporary difference is accrued product
warranty cost is expected to be paid in 2025. The enacted tax rates are 30% for 2024 and 25% for 2025
and thereafter.
I. The deferred tax liability or deferred tax asset is measured using future enacted tax rate.
II. The current tax expense for 2024 is P2,250,000
III. The total tax expense is P1,500,000.
a. Statements I, II and III are true
b. Statements I, II and III are false
c. Only statement I is true
d. Only statements I and II are true

5. An entity reported in the first year of operations pretax financial income of P6,000,000. The income tax
rate is 25%.
Tax return Accounting record

Premium on officers’ life insurance 0 150,000


Tax exempt interest revenue 0 250,000
Uncollectible accounts expense 200,000 300,000
Depreciation expense 1,500,000 1,000,000
Warranty cost 400,000 600,000
Rent received in advance 800,000 0
I. The tax expense is P1,625,000
II. The total tax expense is P1,475,000
III. The deferred tax asset is P125,000
IV. The deferred tax liability is P275,000
a. All statements are true
b. All statements are false
c. Only statements I and II are true
d. Only statement III is false

6. An entity reported the following assets and liabilities at year-end:


Carrying amount Tax base
Land 10,000,000 7,000,000
Machinery and equipment 5,000,000 4,000,000
Inventory 2,500,000 4,000,000
Accounts receivable 2,500,000 3,000,000
Liabilities 6,000,000 5,500,000
The entity had made a provision for inventory obsolescence of P1,500,000. Further, an impairment loss
against accounts receivable of P500,000 has been made. The income tax rate is 25%.
I. If the carrying amount of asset is higher than tax base, the difference is a future taxable amount.
II. If the carrying amount of liability is higher than tax base the difference is a future deductible amount.
III. The deferred tax liability is P1,000,000
IV. The deferred tax asset is P625,000.
a. All statements are true
b. All statements are false
c. Only statements I and II are true
d. Only statements II and IV are true

End

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