Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

Which of the following situations typically creates a deferred tax liability?

Recognizing revenue earlier for tax purposes than for financial reporting

Using accelerated depreciation for tax purposes and straight-line depreciation for financial reporting

Recognizing bad debt expense earlier for tax purposes than for financial reporting

Expensing warranty costs as incurred for both tax and financial reporting

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Verified step by step guidance

Understand the concept of deferred tax liability: A deferred tax liability arises when taxable income is less than accounting income due to temporary differences between tax rules and financial reporting standards. This means the company will owe more taxes in the future.

Analyze the first option: 'Recognizing revenue earlier for tax purposes than for financial reporting.' This situation typically creates a deferred tax asset, not a liability, because the company pays taxes earlier than it recognizes the revenue in its financial statements.

Analyze the second option: 'Using accelerated depreciation for tax purposes and straight-line depreciation for financial reporting.' This creates a deferred tax liability because accelerated depreciation reduces taxable income faster than straight-line depreciation, leading to lower taxes now but higher taxes in the future.

Analyze the third option: 'Recognizing bad debt expense earlier for tax purposes than for financial reporting.' This situation typically creates a deferred tax asset because the company reduces taxable income earlier than it recognizes the expense in its financial statements.

Analyze the fourth option: 'Expensing warranty costs as incurred for both tax and financial reporting.' Since there is no difference between tax and financial reporting treatment, this does not create a deferred tax liability or asset.