Chapter 19 - Accounting for Income Tax need to finish
Objectives of Income Tax Accounting (2)
1. Amount of taxes payable or refundable for the current year 2. deferred tax assets and deferred tax liabilities for the future tax consequences
exp/loss are deductible BEFORE recognized in fiancial income (3) cost of asset
1. dep property, intangibles 2. deductible pension funding 3. prepaid exp
expenses/loss are deductible AFTER recognized in financial income (6) (a liabilty)
1. product warranty liabilties 2. est. liabilities related to discontiued ops/resturcturing 3. litigation accruals 4. BDE recognized 5. stock based compensation exp 6. unrealized holding loss
rev/gains are taxable AFTER recognized in financial income (5) (an asset)
1. sale accounted for on accrual basis 2. contracts under % of completion 3. investments under equity method and 4. gain on involuntary conversion of nonmonetary asset 5. unrealized holding gains
rev/gain are taxable BEFORE recognized as financial income(4) Liabilty
1.subscirption recieved in advance 2. advance rental receipts 3. sales and leasebacks 4. prepaid contracts
journal entry to record income tax expense
DR.income tax expense DR. DTA CR.DTL CR. income tax payable ( based on tax return)
inter-period tax allocation : future taxable amounts is ________; future deductible amounts _______ deferred tax asset due to _______
DTL; DTA valuation allowance
GAP rules vs ASU on where DTA and DTL are located on BS
GAP : split to current and noncurrent determined by triggering point ( EX: dep = noncurrent0 ASU: DTA/DTL will be noncurrent
the valuation allowance account should be evaluated at the end of each accounting period. T/F
True
future tax rates:
applie future tax rate, if known use current tax rate if new tax rate for future year have not been enacted determine and use average tax rate, if graduated tax rate are a significant factor
usefulness of income tax disclosures: 3
asses quality of earnings make better predictions FCF predict FCF from ops loss carrying forward
The FASB believes that the most consistent method for accounting for income taxes is the:
asset liability method
IS presentation : intra period allocation total income tax expense to:
continuing ops discontinued ops extraordinary item prior period adjustment
All of the following are examples of temporary differences that result in tax deductions in future years, except: litigation accruals. depreciable property. estimated liabilities related to discontinued operations. product warranty liabilities.
depreciable property
Companies should classify the balances in the deferred tax accounts on the balance sheet as noncurrent assets and noncurrent liabilities. T/F
false
A loss carryback may be foregone and used as a loss carryforward for up to 25 years. T/F
false`
Permanent Differences: Financial reporting(5) VS tax purposes(2)
financial reporting: 1.interest received on state and municipal obligations 2. expense incurred in obtaining tax exempt income 3. proceeds form life insurance 4. premiums paid for life insurance 5. fines and expenses resulting from violating law tax purposes: 1. percentage depletion of nature resources 2. deduction for dividends received
tax rate considerations (2)
future tax rates and revision of future tax rates
Deferred income taxes are based on the:
future tax rates if they have been enacted into law
deferred tax expense is the ____ in a deferred tax liability
increase
accounting for NOL (2 types of accounting)
loss Carry back ( 2 yrs back and 20 yrs forward) loss carry forward (20 years forward -- carry forward with valuation allowance
income tax expense is based on
pretax income
revision of future tax rate
treat as a change in estimate and adjust income tax exp in the year of change
Proceeds from life insurance carried by the company on key officers or employees is an example of a permanent difference. T/F
true
a deferred tax asset is the deferred tax consequence attributable to deductible temporary differences. T/F
true
do you need to disclose ops loss carry forwards
yes