Question 16

Which of the following is a permanent difference?

		Product warranty liabilities
		Installment sales accounted for on an accrual basis
		Deductible pension funding exceeding expense
		Interest received on state and municipal obligations

Question 17

A company's only temporary difference results from using double declining balance depreciation for tax purposes and straight-line depreciation for financial reporting. The company purchases new plant assets each year. If currently enacted tax law will result in a higher tax rate for all future tax years, which accounting approach for deferred taxes will result in the lowest net income for this current year?

		Nonallocation of deferred taxes.
		Partial allocation of deferred taxes under the asset/liability method.
		Comprehensive allocation of deferred taxes under the asset/liability method.
		Comprehensive allocation of deferred taxes under the deferred method.

Question 18

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

		It is probable and can be reasonably estimated
		There is at least a 51% probability that the uncertain tax position will be approved by the taxing authorities
		It is more likely than not that the tax position will be sustained upon audit
		All of the above

Question 19

A net operating loss:

		Must always be carried back 2 years
		Occurs when a company reports a net loss in their income statement
		May be carried forward indefinitely
		Must always be carried forward 20 years

Question 20

The accounting recognition of the benefit from a tax loss carryforward in most situations should be reported as

		A reduction of the loss in the year of the loss with an appropriate valuation allowance
		A prior period adjustment in whichever year the benefit is realized
		As a component of income from continuing operations in the year in which the benefit is realized
		An item on the retained earnings statement, not the income statement