Income Taxes

8 questions

1. 1. A company owns a building that has an accounting value of $5 million and a tax basis of $4 million. The company sells the building for its accounting value. Assuming a company's tax rate of 40%, calculate the amount of deferred tax liability, if any.
   Nil$400,000$1,000,000
2. 2. Which of the following will lead to the creation of a deferred tax liability?
   Development costs are capitalized for accounting purposes, but deducted for tax purposes when incurred.Revenue is received in advance and deferred for accounting, but is included in taxable income on a cash basis.A liability for pension costs is recognized for accounting when the service is provided, but is only deductible for tax when the contributions are funded.
3. 3. Which of the following is an example of a permanent difference between taxable income and accounting profits?
   DepreciationPension expenseMeals and entertainment
4. 4. When the carrying value of a liability is greater than the tax base, this will lead to the creation of:
   Deferred tax assetDeferred tax liabilityNo deferred tax asset or liability will be created
5. 5. If the tax rate increases, what will be the impact on the deferred tax assets?
   IncreaseDecreaseRemain unchanged
6. 6. A company receives an advance of $100,000 for fulfilling an order. The company pays a tax of $35,000 on the advance received. However, the order will not be fulfilled until next year. What will be the tax basis of the advance at the end of the year?
   $0$65,000$100,000
7. 7. If a company revalues its fixed assets, how will the deferred taxes arising from it recognized under US GAAP?
   Recognized as AssetRecognized as LiabilityRecognized in shareholder's equity
8. 8. Which of the following is an example of a deferred tax liability?
   Bad debt expenseInstalment salesRent received in advance