Intermediate Accounting 2 PDF

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Leases and Income Tax...

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QUIZ ON INTERMEDIATE ACCOUNTING 2 THEORIES 1.

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When equipment held under an operating lease is subleased by the original lessee, the original lessee would account for the sublease as a. Sales type lease b. Operating lease c. Direct financing lease d. Finance lease It is the date on which the lessee is entitled to exercise the right of use the leased asset. a. Inception of the lease b. Commencement of the lease c. Date of lease agreement d. Date of commitment to the provisions of the lease What is the treatment of initial direct costs incurred by the lessee in a finance lease? a. Added to the carrying amount of the leased asset b. Added to the lease liability c. Added to the carrying amount of both d. Expensed outright Lessors shall recognize asset held under a finance lease as a receivable at an amount equal to a. Gross investment in the lease b. Net investment in the lease c. Gross rentals d. Residual Value Which if the following statements is correct regarding initial direct costs incurred by the lessor? a. In a direct financing lease, initial direct costs are added to the net investment in the lease b. In a sales type lease, initial direct costs are expensed as cost of COGS c. In an operating lease, initial direct costs are deferred and allocated over the lease term. d. All are correct An entity sold a building at a gain simultaneously leases back the building. If the lease was reported as a finance lease at the time of sale, the gain should be reported as a. Component of profit or loss b. Component of shareholders’ equity c. An asset valuation allowance d. None of the above Statement I: Rent revenue received in advance is recognized as revenue for tax purposes prior to its recognition for financial accounting purposes. Statement II: Current tax laws in the Philippines require a 3-year carryback of any

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net operating loss.

a. True, True b. False, True c. False, False d. True, False Statement I: Estimated warranty liability are deductible on the tax return prior to being reported in the income statement.

Statement II: The benefit that arises from the use of the net operating loss carryforwards is used to reduce the tax payment in the period. a. True, True b. False, True c. False, False d. True, False 9. Statement I: Non taxable revenues are added to financial income for tax computation purposes. Statement II: Non deductible expenses are deducted to arrive at income subject to tax. a. True, True b. False, True c. False, False d. True, False 10. Which of the following temporary differences ordinarily creates a deferred tax asset assuming the taxpayer is taxed on cash basis? a. Accrued warranty costs b. Installment sales c. Depreciation d. Amortization of goodwill 11. A six-year finance lease entered into on December 31 of the current year specified equal minimum annual lease payments due on December 32 of each year. The first minimum annual payment paid on December 31 of the current year consists of which of the following? a. Interest expense b. Lease liability c. Both interest expense and lease liability

d. Neither interest expense nor lease liability 12. The present value of the minimum lease payments should be used by the lessee in the determination of a. Finance lease liability b. Operating lease liability c. Both finance lease and operating lease d. Neither finance nor operating 13. A lessee with a finance lease containing a bargain purchase option should depreciate the leased asset over the

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a. Useful life of the asset b. Lease term c. Whichever is shorter between the lease term and useful life d. None of the above Executory costs include all of the following, except a. Bargain purchase option b. Maintenance c. Property taxes d. Insurance Which statement characterizes an operating lease? a. The lessee records depreciation and interest b. The lessee records the lease obligation related to the leased asset c. The lessor transfers title of the leased property to the lessee for the duration of the lease term d. The lessor records depreciation and lease revenue It is deferred tax consequence attributable to a deductible temporary difference and operating loss carryforward. a. Deferred tax liability b. Deferred tax asset c. Current tax liability d. Current tax asset It is the profit for a period before deducting tax expense a. Accounting profit b. Taxable profit c. Gross profit d. Net profit The deferred tax expense is equal to a. Increase in deferred tax asset less the increase in deferred tax liability b. Increase in deferred tax liability less the increase in deferred tax asset c. Increase in deferred tax asset d. Increase in deferred tax liability It is an amount attributable to an asset or liability for tax purposes a. Carrying amount b. Tax base c. Measurement base d. Taxable amount A temporary difference which would result in a deferred tax liability is a. Interest revenue on municipal bonds b. Accrual of warranty expenses c. Excess of tax depreciation over accounting depreciation d. Subscription received in advance The classification of the lease is normally carried out a. At the end of the lease term b. After a cooling off period of one year c. At the inception of the lease d. When the entity deems it to be necessary The government uses the income tax laws for raising revenues and implementing fiscal policy a. True b. False “Unrealized losses on held for trading securities” result in lower taxable income than financial accounting purposes a. True b. False It is an arrangement whereby one party sells a property to another and then immediately leases the property back from the new owner a. Sale b. Leaseback c. Sale and leaseback d. None of the above Both finance lease and operating leases are subject to capitalization a. True b. False

PROBLEMS Jannah Company began operations at the beginning of the current year. At the end of the first year of operations, the entity reported P6,000,000 income before income tax in the income statement but only P5,100,000 taxable income in the tax return. Analysis of the P900,000 difference revealed that P500,000 was a permanent difference and P400,000 was a temporary tax liability difference related to a current asset. The enacted tax rate for the current year and future years is 30%. 26. What is the current tax expense? a. 1,680,000 b. 1,800,000 c. 1,380,000

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1,530,000

27. What is the total income tax expense to be reported in the income statement for the current year? a. 1,650,000 b. 1,530,000 c. 1,950,000...