Chapter 19: Accounting for Income Taxes

Question 1

In deferred income taxes, we have…

Answer 1

• Temporary differences
• 3 steps to record income taxes
• balance sheet perspective
• deferred tax liabilities
• deferred tax assets
• valuation allowance

Question 2

In temporary differences, accounting income is determined by….

Answer 2

FASB (accrual)

Question 3

In temporary differences, taxable income is determined by…

Answer 3

IRC (cash)

Question 4

Differences in accounting and taxable income that originate in one period and reverse in one or more subsequent periods.

Answer 4

Temporary differences (Timing)

Question 5

What are the 3 steps to record income taxes?

Answer 5

1: calculate current taxes payable (Taxable income x tax rate)
2: change in deferred tax items
3: combine steps 1 and 2 to determine income tax expenses

Question 6

In the balance perspective, how is that calculated?

Answer 6

tax rate x temporary difference

Question 7

This represents a FUTURE TAXABLE AMOUNT because taxable income will be increased to accounting income in the year(s) when temporary differences reverse.

Answer 7

deferred tax liability (TI > AI)

Question 8

Deferred tax liabilities represents a….

Answer 8

future taxable amount

Question 9

In deferred tax liabilities, revenues or gains are reported on tax return ___ the income statement.

Answer 9

after

Question 10

In deferred tax liabilities, expenses or losses are reported on tax return ___ the income statement.

Answer 10

before

Question 11

In deferred tax liabilities, future taxable income is greater or less than future accounting income?

Answer 11

greater

Question 12

This represents a future deductible amount because taxable income will be decreased related to accounting income in the year(s) when temporary differences reverse.

Answer 12

deferred tax assets

Question 13

deferred tax assets represent a…

Answer 13

future deductible amount

Question 14

In deferred tax assets, revenues or gains are reported on tax return ___ the income statement.

Answer 14

before

Question 15

In deferred tax assets, expenses or losses are reported on tax return ___ the income statement.

Answer 15

after

Question 16

In deferred tax assets, future taxable income is greater or less than future accounting income?

Answer 16

less

Question 17

This is used to reduce DTA if it is a “more likely than not” that some portion or all of the deferred tax asset will not be realized (future taxable income is insufficient to realize the tax benefit).

Answer 17

valuation allowance

Question 18

Deferred tax assets are reported at …

Answer 18

net realizable value

Question 19

What are Other Tax Accounting Issues?

Answer 19

• permanent differences
• change in tax rates
• net operating loss
• financial statement representation

Question 20

This is an item that never affects taxable income or taxable payable.

Answer 20

permanent differences

Question 21

What are examples of permanent differences?

Answer 21

• interest income on municipal bonds
• penalties
• fines

Question 22

When determining both the taxable payable currently and the deferred tax effect, permanent differences are…

Answer 22

disregarded

Question 23

Deferred taxes should be determined using ___ if known.

Answer 23

future tax rates

Question 24

If a c change in tax law or rates occurs, what must we adjust?

Answer 24

deferred taxes

Question 25

An operating loss can be used to reduce taxable income by either…

Answer 25

• carry back 2 years (earliest year first) to get a refund of taxes paid
• carry forward up to 20 years; creates a deferred taxed asset (DTA)

Question 26

The ___ of both carry backs and carry forwards is recognized in the year the operating loss occurs.

Answer 26

income tax benefit

Question 27

DTA and DTL need to be classified as…

Answer 27

current or noncurrent

Question 28

• deferred tax accounts are classified as current or non-current based on the classification of the related assets or liabilities for financial reporting purposes.
• will preset a net current amount and a
• net non-current amount

Answer 28

balance sheet classification

Question 29

• the components of income tax expenses
• amounts and expiration dates of operating loss carry forwards
• types of temporary differences
• changes in valuation allowance

Answer 29

footnote disclosures

Question 30

What are the components of income tax expenses?

Answer 30

• current tax expenses
• deferred tax expenses
• tax credits
• NOL carry forward benefit
• adjustments from changes in tax rates