Question

Which of the following is not required by GAAP for intraperiod income tax allocation to income (or loss) related to:

a) Discontinued operations
b) Continuing operations
c) Extraordinary items
d) Prior period adjustments
e) Changes in accounting principles

Answer 1

GAAP requires intraperiod tax allocation for discontinued operations, extraordinary items, and prior period adjustments, but not for changes in accounting principles. Continuing operations do not require a separate tax allocation as their tax effects are included in the total income tax expense for the period.

Step-by-step explanation:

The question pertains to the requirements of the Generally Accepted Accounting Principles (GAAP) for intraperiod income tax allocation among various components of net income. According to GAAP, intraperiod tax allocation should be applied to discontinued operations, extraordinary items, and prior period adjustments, but not to changes in accounting principles. Therefore, the component that is not required by GAAP for intraperiod tax allocation is e) Changes in accounting principles.

Continuing operations are typically presented net of tax in the income statement, but GAAP does not require a separate intraperiod tax allocation for this item as it does for items such as discontinued operations or extraordinary items, because the income tax effect is already included in the overall income tax expense for the period.