Question

Listed below are five independent situations. For each situation indicate (by letter) whether it will create (A) a deferred tax asset, (L) a deferred tax liability, or (N) neither.

___ 1) Research and development costs reported in the income statement but elected to be capitalized and amortized over five years for tax purposes.

___ 2) An operating loss carryforward.

___ 3) Organization costs reported in the income statement but amortized and deducted over five years for tax purposes.

___ 4) Premiums paid on life insurance policies covering key corporate executives.

___ 5) The nondeductible portion of travel and entertainment expenses.

Answer 1

Deferred tax assets are the recoverable amounts of income taxes in future period .

Deffered tax liabilties are the income tax payable amounts in future period

1.(A)

a deferred tax asset

Research and development costs reported in the income statement but elected to be capitalized and amortized over five years for tax purposes.

2.(N)

Neither

An operating loss carryforward

3.(A)

a deferred tax asset

organization costs reported in the income statement but amortized and deducted over five years for tax purpose

4.(N)

Neither

Premiums paid on life insurance policies covering key corporate executives

5.(A)

a deferred tax asset

The non-deductable portion of travel and entertainment