Chapter 6 Section 4: Accounting for Income Taxes Flashcards
What are the two types of differences between pretax GAAP income and taxable income?
What do each affect?
Permanent - only affect current
Temporary - affect current and deferred
What is the total income tax expense or benefit for the year made of?
Current income tax expense/benefit
Deferred income tax expense/benefit
How do you calculate tax expense?
Tax return x current tax rate = current liability
Temp differences x enacted rate = deferred lia/asset
First + or - the second = total tax expense
Explain when you have future or prepaid liabilities or benefits
Taxable income later = future liability
Taxable income first = prepaid tax benefit
Tax deductible later = future tax benefit
Tax deductible first = future liability
What’s an easy way to remember when it’s a deferred tax asset or liability?
DTL = future tax income > future financial income DTA = future tax income
What is a valuation account used for?
Does IFRS use them?
When it is more likely than not that part or all of the deferred tax asset will not be realized, a valuation allowance is recognized to decrease the asset.
IFRS does not allow valuation allowances.
What are the two tests for uncertain tax positions?
- What is the expected outcome in the court of last resort?
- What is the expected outcome in a settlement with ta taxing authority?
Recognize the more likely than not amount
How are changes in tax rates handled?
They are a change in estimate. Just put it in income from continuing operations during that period.
Example of beginning balance and changing rates:
Beginning temp diff of 10,000, add 20,000 this year. Last year’s tax rate was 20%, this year’s is 30%. What is this year’s adjustment?
10000 \+20000 =30000 x 30% =9000: ending required -2000: beginning tax lia (10000*20%) =7000 current year adjustment.
How do you classify deferred tax liabilities and benefits?
It stays with what gave birth to it.
If a deferred tax liability is from depreciation, it’s noncurrent because the assets being depreciated are noncurrent.
How are the deferred tax liabilities and benefits displayed on the balance sheet?
Net across
Add all current assets and liabilities and present as one
Add all noncurrent assets and liabilities and present
For a total of two amounts shown.
What do you do with investee’s undistributed earnings?
For the income tax return: Based on dividend income 0-19% ownership: 70% exclusion 20-80% ownership: 80% exclusion over 80% ownership: exclude all For F/S: It's based on the percentage of sub income
The difference between dividend income and sub income is temporary, but the exclusion is permanent
