Question : Learning Objective 6-9 (Appendix) 1) Which of the following statements TRUE? A) : 1253309

Learning Objective 6-9 (Appendix)

1) Which of the following statements is TRUE?

A) The depreciation expense reported on external financial statements prepared for shareholders is guided by generally accepted accounting principles.

B) The depreciation expense reported on a federal income tax return is guided by generally accepted accounting principles.

C) The depreciation expense reported on the income statement must match (the matching principle) the depreciation expense reported on a Federal income tax return.

D) MACRS is an accelerated depreciation method that can be used for financial reporting.

2) Drudge Company has a 25% marginal tax rate. Assume that the company has income before depreciation and taxes of $20,000 and elects a tax depreciation method that results in $8,000 of depreciation for tax purposes. What will be the company’s tax liability this year?

A) $12,000

B) $5,000

C) $3,000

D) $2,000

3) Waylon Company has a 25% marginal tax rate. The company reports depreciation expense of $10,000 on its annual report for shareholders, which is based on GAAP. For its federal income tax return, the company chooses a tax depreciation method that results in a depreciation deduction of $12,000. What is the difference in taxes for the two different depreciation methods?

A) $2,000

B) $500

C) $12,000

D) $0

4) Which of the following depreciation methods is used only on federal tax returns?

A) straight-line

B) double-declining balance

C) activity

D) Modified Accelerated Cost Recovery System (MACRS)

5) How many of the following depreciation methods result in reporting larger depreciation expense in the early years of asset ownership than is reported in the later years?

? Straight-line

? Double-declining balance

? Modified Accelerated Cost Recovery System (MACRS)

A) none

B) one

C) two

D) all three

6) How many of the following depreciation methods result in reporting equal depreciation expense for every year an asset is owned and used?

? Straight-line

? Double-declining balance

? Modified Accelerated Cost Recovery System (MACRS)

A) none

B) one

C) two

D) all three

7) The Modified Accelerated Cost Recovery system (MACRS) can be used to calculate depreciation for company’s annual report, but not for its Federal tax return.

8) The Modified Accelerated Cost Recovery system (MACRS) allows a company to report more depreciation expense in the early years of an asset’s life.

9) The Internal Revenue Service requires that a corporation must use the same depreciation method on its tax return that it uses on its annual report.

10) The Internal Revenue Service Code sets accounting rules, including depreciation, used to prepare financial statements issued to shareholders.

11) Generally accepted accounting principles are used to determine the depreciation deduction available on a tax return.

12) IFRS sets accounting rules, including depreciation, used to prepare Federal tax returns.