Which of the following is the reason for using interperiod tax allocation? (a) 1. To recognize a tax asset or tax liability due to differences between taxable income and book income exist at the date of the financial statements. the fact that temporary (b) To adjust income tax expense on the income statement so that it (c) To recognize that an expense has been incurred that is owed to the (d) To reconcile the differences between income tax expense and income agrees with the income taxes payable on the balance sheet. taxing agency. taxes payable due to permanent and temporary differences that appear in the current year's financial statements. 2 The deferred tax expense is the: (a) (b) (c) (d) Increase in the balance of the deferred tax asset minus the increase in the balance of the deferred tax liability. Decrease in the balance of the deferred tax asset minus the increase in the balance of the deferred tax liability Increase in the balance of the deferred tax liability minus the increase in the balance of the deferred tax asset. Increase in the balance of the deferred tax asset plus the increase in the balance of the deferred tax liability 3. In which of the following situations would interperiod tax allocation not be (a) Different revenue recognition methods are used for accountin osts are amortized in the year of expenditure for tax purposes but A different useful life for depreciable assets is used for tax necessary? purposes than are used for tax purposes. are capitalized for accounting purposes. depreciation than for accounting depreciation. (c) (d) Percentage depletion exceeds cost depletion for the period. 4. A company uses the equity method to account for one of its investments. What type of difference will this create and what type of deferred income tax will result? Type of Difference Deferred (a) Permanent (b) Temporary (c) Temporary (d) Permanent Asset Asset Liability Liability Kabul Corporation incurred a loss for both financial accounting and income tax purposes for 20X1. Kabul decided to use the carryback provisions in the income tax law since the company had been profitable in previous years. How should the amounts for this situation be shown in the 20X1 financial statements? (a) The refund claimed should be shown as a reduction of the loss in 5. 20X1. (b) The refund claimed should be reported as revenue in 20X1 (c) The refund claimed should be reported as a deferred liability and amortized over three years. The reduction of the loss should be reported as a prior period adjustment. (d)