A Deferral Principle Specifies That Parent Companies Are Not Taxed

question 13

Multiple Choice

A deferral principle specifies that parent companies are not taxed on foreign source income until _____.

• A) the subsidiary providing income makes some profit
• B) they actually receive a dividend
• C) they acquire majority stake in the subsidiary
• D) the subsidiary providing income is listed in the U.S.

---

Definitions:

Beginning Inventory

The value of all inventory held by a company at the start of an accounting period.

Ignoring Income Taxes

Refers to the accounting practice or principle where income taxes are not considered in the calculation of financial metrics or performance evaluations.

Deferred Tax Asset

A tax reduction amount that can be used to offset future taxable income, arising from temporary differences between book and tax income.

Deferred Tax Liability

This is a tax obligation due in the future for income that has already been recognized in the financial statements.