What to know
Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Financial Statement Analysis
Analysis of Income Taxes practice questions
Analysis of Income Taxes is part of CFA Level I Financial Statement Analysis. Financial Statement Analysis questions require careful reading of accounting choices, ratios, cash flow classification, inventories, taxes, leases, and reporting quality. Use this page to review the controlling ideas, then work through 9 questions with answer explanations and common traps.
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Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.
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Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.
Financial Statement Analysis
Analysis of Income Taxes
Under US GAAP, a valuation allowance is most likely recognized against:
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Analysis of Income Taxes
Renata Costa's firm buys equipment for $900 at the start of the year. For financial reporting it depreciates the asset straight-line at $150 per year; for tax purposes, first-year depreciation is $300. The tax rate is 30%. At year-end, the balance sheet most likely reports:
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Analysis of Income Taxes
Kenji Sato compiles the following for a company: taxable income of $700 million and a statutory tax rate of 30%. During the year, deferred tax liabilities increased by $25 million and deferred tax assets increased by $10 million, with no valuation allowance. Income tax expense for the year is closest to:
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Analysis of Income Taxes
Income tax expense is best described as:
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Analysis of Income Taxes
Pretax accounting income is 1,000, taxable income is 800, and the tax rate is 25%. Taxes payable are closest to:
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Analysis of Income Taxes
A company recognizes revenue in accounting income before it is taxable. The temporary difference most likely creates:
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Analysis of Income Taxes
Income tax expense is 180, pretax income is 900, and cash taxes paid are 150. The effective tax rate is closest to:
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Analysis of Income Taxes
An asset has a carrying amount of 500 and tax base of 420. The tax rate is 30%. The related deferred tax item is closest to:
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Analysis of Income Taxes
A permanent difference that increases pretax accounting income relative to taxable income will most likely:
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