📝 Deferred Taxes MCQ — CPA Exam (FAR) | Financial Accounting Course

Why It Matters

Understanding how tax‑rate changes and valuation‑allowance adjustments affect deferred tax assets directly impacts income‑tax expense calculations, a frequent CPA exam focus that can differentiate passing candidates.

Key Takeaways

• Deferred tax asset net value derived from gross and allowance.
• Tax rate change reduces DTA, increasing income tax expense.
• Valuation allowance increase adds another expense impact to calculations.
• Total expense effect equals $600 increase in year two.
• Quick mental elimination of answer choices speeds CPA problem solving.

Summary

The video walks viewers through a multiple‑choice question on deferred tax assets (DTA) and valuation allowances, a core topic for CPA, CMA and accounting students. Professor Farhat starts with a net DTA of $1,900, explains that the gross DTA is $2,400 with a $500 valuation allowance, and then introduces a tax‑rate shift from 40% to 35% in year two. Key calculations include deriving the underlying temporary difference of $6,000 (2,400 ÷ 0.40) and applying the new 35% rate, which reduces the DTA by $300. Simultaneously, the valuation allowance rises by $300, creating a second $300 expense impact. Together, these adjustments raise year‑two income‑tax expense by $600. Farhat emphasizes a mental shortcut: “If my deferred tax asset goes down, my income‑tax expense goes up,” allowing students to discard two answer choices instantly. He also highlights the two‑step logic—tax‑rate effect and allowance change—that leads to the correct answer (C). The lesson underscores how mastering DTA mechanics and quick elimination techniques can shave minutes off CPA exam timing, while AI tools can reinforce concepts or generate similar practice questions for deeper preparation.

Original Description

This MCQ video tests deferred tax concepts, including temporary differences, deferred tax assets and liabilities, valuation allowances, and tax rate changes. These exam-style questions reinforce critical financial reporting topics heavily tested on the CPA Exam (FAR) and in core Financial Accounting Courses.

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📚 Complete A–Z supplement to CPA Review & Accounting Courses

Farhat is:

✅ Mapped to your CPA course (Becker, UWorld, Gleim, Miles, Surgent & more)

✅ In-depth explanations of income tax accounting concepts

✅ Tons of MCQs (including AICPA)

✅ Ongoing support & guidance from Farhat and his team

❌ Not a replacement for your CPA course — a powerful supplement

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