Deferred Tax Liability Flashcards
HOW do you calculate your current provision for the portion of a company’s income taxes?
BY Multiplying the current taxable income by the current tax rate
Again the Equation is;
“Taxable Income” x “Effective income tax rate “
WHAT would be the Journal Entry for current taxes payable?
dr Income tax expense - current
cr Income tax payable
WHAT would be the Journal Entry for a deferred tax asset?
dr Deferred tax asset
cr Income tax expense - deferred
WHAT would be the Journal Entry for an allowance to reduce tax asset?
dr Income tax expense - deferred
cr Allowance to reduce deferred tax asset
WHAT is the justification for the method of determining periodic deferred tax expense based on?
THE concept of “Recognition of assets and liabilities”
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. increase or decrease
B. tax asset
C. tax liability
WHAT income tax rate should a company use for their interim income statement?
THE estimate of its effective annual income tax rate
WHAT happens when the differences between taxable income and financial statement income are all permanent differences?
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)
True or False.
A Penalty on a 20X1 tax deficiency paid in 20X3 will affect the current income tax expense of 20X3.
FALSE.
A change in the income tax rate in 20X3 will affect the current income tax expense of 20X3.
WHAT tax rate would you use if there was a taxable temporary difference and the temporary tax liability was to be temporarily deferred?
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%
WHAT are examples of assets that would increase in deferred income tax liabilities?
(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
According to GAAP, what “approach” is used to determine income tax expense?
THE “Asset and liability” approach
WHAT are the (2) primary objectives of accounting for income taxes?
(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
True or False.
Rent received in advance is NOT taxable in the year received.
FALSE.
Rent received in advance is taxable in the year received and would increase the taxable Financial statement income for that year
True or False.
Inventory losses generally should be recognized in the interim statements
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.
