Chapter 19 - Accounting for Income Tax need to finish

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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


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