Multiple choice

1.) Which of the following situations would require interperiod income tax allocation procedures?

a.An excess of percentage depletion over cost depletion
b.Interest received on municipal bonds
c.A temporary difference exists at the balance sheet date because the tax basis of an asset or liability and its reported amount in the financial statements differ
d.Proceeds from a life insurance policy on an officer

2.) Interperiod tax allocation would not be required when

a. costs are written off in the year of the expenditure for tax purposes but capitalized for accounting purposes.
b. statutory (or percentage) depletion exceeds cost depletion for the period.
c. different methods of revenue recognition arise for tax purposes and accounting purposes.
d. different depreciable lives are used for machinery for tax and accounting purposes.

3.) Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in
Future Taxable Amounts Future Deductible Amounts
a. Yes Yes
b. Yes No
c. No Yes
d. No No

4.) Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of

a. materiality.
b. consistency.
c. conservatism.
d. objectivity.

5.)Which of the following is accounted for as a change in accounting principle?

a.A change in the estimated useful life of plant assets.
b.A change from the cash basis of accounting to the accrual basis of accounting.
c.A change from expensing immaterial expenditures to deferring and amortizing them as they become material.
d.A change in inventory valuation from average cost to FIFO.

6.) A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a

a.credit to Accumulated Depreciation.
b.debit to Retained Earnings in the amount of the difference on prior years.
c.debit to Deferred Tax Asset.
d.credit to Deferred Tax Liability.

7.)Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line?

a.The cumulative effect on prior years, net of tax, in the current retained earnings statement
b.Restatement of prior years' income statements
c.Recomputation of current and future years' depreciation
d.All of these are required.

8.)A company changes from percentage-of-completion to completed-contract, which is the method used for tax purposes. The entry to record this change should include a

a.debit to Construction in Process.
b.debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.
c.debit to Retained Earnings in the amount of the difference on prior years, net of tax.
d.credit to Deferred Tax Liability.

9.) Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate?

a.Current period and prospectively
b.Current period and retrospectively
c.Retrospectively only
d.Current period only