Chapter 19: Accounting for Income Taxes Flashcards
In deferred income taxes, we have…
- Temporary differences
- 3 steps to record income taxes
- balance sheet perspective
- deferred tax liabilities
- deferred tax assets
- valuation allowance
In temporary differences, accounting income is determined by….
FASB (accrual)
In temporary differences, taxable income is determined by…
IRC (cash)
Differences in accounting and taxable income that originate in one period and reverse in one or more subsequent periods.
Temporary differences (Timing)
What are the 3 steps to record income taxes?
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
In the balance perspective, how is that calculated?
tax rate x temporary difference
This represents a FUTURE TAXABLE AMOUNT because taxable income will be increased to accounting income in the year(s) when temporary differences reverse.
deferred tax liability (TI > AI)
Deferred tax liabilities represents a….
future taxable amount
In deferred tax liabilities, revenues or gains are reported on tax return ___ the income statement.
after
In deferred tax liabilities, expenses or losses are reported on tax return ___ the income statement.
before
In deferred tax liabilities, future taxable income is greater or less than future accounting income?
greater
This represents a future deductible amount because taxable income will be decreased related to accounting income in the year(s) when temporary differences reverse.
deferred tax assets
deferred tax assets represent a…
future deductible amount
In deferred tax assets, revenues or gains are reported on tax return ___ the income statement.
before
In deferred tax assets, expenses or losses are reported on tax return ___ the income statement.
after
In deferred tax assets, future taxable income is greater or less than future accounting income?
less
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).
valuation allowance
Deferred tax assets are reported at …
net realizable value
What are Other Tax Accounting Issues?
- permanent differences
- change in tax rates
- net operating loss
- financial statement representation
This is an item that never affects taxable income or taxable payable.
permanent differences
What are examples of permanent differences?
- interest income on municipal bonds
- penalties
- fines
When determining both the taxable payable currently and the deferred tax effect, permanent differences are…
disregarded
Deferred taxes should be determined using ___ if known.
future tax rates
If a c change in tax law or rates occurs, what must we adjust?
deferred taxes
An operating loss can be used to reduce taxable income by either…
- 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)
The ___ of both carry backs and carry forwards is recognized in the year the operating loss occurs.
income tax benefit
DTA and DTL need to be classified as…
current or noncurrent
- 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
balance sheet classification
- the components of income tax expenses
- amounts and expiration dates of operating loss carry forwards
- types of temporary differences
- changes in valuation allowance
footnote disclosures
What are the components of income tax expenses?
- current tax expenses
- deferred tax expenses
- tax credits
- NOL carry forward benefit
- adjustments from changes in tax rates
