In the country of Merlenia, authorities require that tax reports and financial reports be identical. In Merlenia, there will be:
Answer(s): A
Deferred taxes arise out of temporary differences between tax reports and financial statements. To account for such differences under accrual accounting, deferred tax assets or liabilities are generated in accordance with the Matching Principle.
The average age of a firm's depreciable assets is 9 years. The firm, subject to a tax rate of 40%, saves 20,000 each year due to depreciation expense. The total depreciation that the firm has accumulated is _______.
Answer(s): C
Since tax savings from depreciation = (depreciation expense)*tax rate, one obtains depreciation expense = 20,000/0.4 = 50,000. Also, Average age = Accumulated depreciation/Depreciation expense. Hence, total accumulated depreciation = 9*50,000 = 450,000
Which of the following is not a financing activity in the statement of cash flows?
The payment of interest on debt is not a financing activity.
A firm has net sales of $6,000 in fiscal 1998, cash expenses (including taxes) of $2,800, and depreciation of $1,000. If accounts receivable increased in the period by $800, cash flows from operations equal ________.
(6,000 - 2,800 - 800)
The following is referred to as the critical event in income determination:
Recording revenues at the proper time is the critical event. Expenses are typically easier for companies to allocate to the proper periods. Expenses are more certain than revenues for most companies.
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