Deferred Tax Liability Flashcards

1
Q

HOW do you calculate your current provision for the portion of a company’s income taxes?

A

BY Multiplying the current taxable income by the current tax rate

Again the Equation is;

“Taxable Income” x “Effective income tax rate “

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2
Q

WHAT would be the Journal Entry for current taxes payable?

A

dr Income tax expense - current

cr Income tax payable

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3
Q

WHAT would be the Journal Entry for a deferred tax asset?

A

dr Deferred tax asset

cr Income tax expense - deferred

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4
Q

WHAT would be the Journal Entry for an allowance to reduce tax asset?

A

dr Income tax expense - deferred

cr Allowance to reduce deferred tax asset

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5
Q

WHAT is the justification for the method of determining periodic deferred tax expense based on?

A

THE concept of “Recognition of assets and liabilities”

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6
Q

Fill in the Blank.

Deferred income tax expense will be the _____A_____ in the net deferred __B___ or deferred ___C____ from the beginning of the period to the end of the period.

A

A. increase or decrease

B. tax asset

C. tax liability

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7
Q

WHAT income tax rate should a company use for their interim income statement?

A

THE estimate of its effective annual income tax rate

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8
Q

WHAT happens when the differences between taxable income and financial statement income are all permanent differences?

A

THEY will have no tax effect and the company’s total Income Tax expense will be the same as the current amount (of the current year)

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9
Q

True or False.

A Penalty on a 20X1 tax deficiency paid in 20X3 will affect the current income tax expense of 20X3.

A

FALSE.

A change in the income tax rate in 20X3 will affect the current income tax expense of 20X3.

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10
Q

WHAT tax rate would you use if there was a taxable temporary difference and the temporary tax liability was to be temporarily deferred?

A

THE rate when the deferred tax liability will become taxable

e.g. currently 25% in 20X1 but the deferred liability will not become taxable in 20X2 at rate of 30%, you would use the 30%

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11
Q

WHAT are examples of assets that would increase in deferred income tax liabilities?

A

(1) An increase in prepaid insurance
(2) An increase in rent receivable

NOTE: BOTH represent an asset on the financial statements that exceed the tax basis, resulting in a taxable temporary difference that increases deferred tax liabilities

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12
Q

According to GAAP, what “approach” is used to determine income tax expense?

A

THE “Asset and liability” approach

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13
Q

WHAT are the (2) primary objectives of accounting for income taxes?

A

(1) To recognize the current-year amount of taxes payable or refundable; and
(2) To recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences

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14
Q

True or False.

Rent received in advance is NOT taxable in the year received.

A

FALSE.

Rent received in advance is taxable in the year received and would increase the taxable Financial statement income for that year

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15
Q

True or False.

Inventory losses generally should be recognized in the interim statements

A

TRUE.

Inventory losses generally should be recognized in the interim statements unless the decline can be reasonably expected to be restored in the fiscal year.

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16
Q

True or False.

A planned variance that occurs in one interim period that is expected to be absorbed in a future interim period within the same fiscal year will not be recognized.

A

TRUE.

A planned variance that occurs in one interim period that is expected to be absorbed in a future interim period within the same fiscal year will not be recognized.

**It will be deferred in the period in which it occurs, regardless of whether it is FAVORABLE or UNFAVORABLE, and offset in the period in which it is absorbed.

17
Q

HOW long can Net Operating Losses be carried forward?

A

20 YEARS

i.e. Net operating losses can be carried forward for 20 years.

NOTE: The tax effects are recognized to the extent that the tax benefit is more likely than not to be realized

E.g. The Net Operating Loss is $40,000 and effective tax rate is 30%
Therefore the maximum amount company can forward is $40,000 x 30% = $12,000

18
Q

True or False.

AN enterprise preparing interim financial statements should use the same accounting principles followed in preparing its latest annual financial statements.

A

TRUE.

Generally, the results for an enterprise’s interim period shall be based on the same accounting principles followed in preparing its latest annual financial statements

NOTE: This is unless a change in accounting policy has been adopted in the current year.

19
Q

True or False.

Declines in the value of inventory expected to be recovered in a subsequent interim period that are part of the same annual period are recognized in the interim period in which they occur.

A

FALSE.

ONLY when inventory declines are expected to be recovered in a subsequent interim period, is the loss recognized to the extent that it is not expected to be recovered.

20
Q

In general what qualities do interim financial statements emphasize?

A

(1) Timeliness

(2) Relevance