CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

In 2015, Taylor Company received $240,000 rent in advance. For income tax purposes, all of the $240,000 was included in taxable income. However, for financial reporting purposes, only $60,000 was included in the pretax financial income. The tax effects of the $180,000 difference affect income tax liability, the deferred tax asset, and the deferred tax liability, respectively, in the following ways for 2015: ______.
A. increase; increase; no effect
B. no effect; increase; no effect
C. increase; no effect; increase
Explanation: Current taxable income is greater than current financial income. This recognition of revenue for tax purposes before financial purposes will result in a deferred tax asset being recognized. The income tax liability will increase because taxable income is greater. There is no effect on a deferred tax liability.

User Contributed Comments 7

User Comment
kalps (1) Future taxable income will be lower therefore deferred tax assets (2) Taxable income higher this year therefore higher IT liability
shasha income tax Liability = tax payable? another name for tax payable? income tax Expense = tax payable + deferred tax liability - deferred tax asset
gene80 sigh.. received cash in advance! Gotta read closer into the question!
jackwez revenue not expense... damn it.. good question
boddunah rent received in advance, interest received in advance are included in taxable income in the period it is received.
JeremyMartin is income tax liability and tax payable same? please advice
davcer you receive rent in advance, so for tax purposes the 240,000 are included in taxable income this period, so you have a DTA
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