Deferred Taxes

Question 1

Future Taxable Amounts

Answer 1

Create Deferred Tax Liabilities (credit balance)

Installment sales not taxable til $ recd
LT Contracts -% of completion
Straight-line depreciation

Question 2

Future Deductible Amounts (FDA)

Answer 2

Create Deferred Tax Assets (debit balance)

Warranty claims - accrued
Income recd in advance

Question 3

Permanent Differences - life insurance

Answer 3

Life insurance on key personnel - no deduction on taxes: income not taxed

Question 4

Permanent differences - municipal bonds

Answer 4

Interest income from municipal bonds
Never taxed

Question 5

Permanent differences - dividends received deduction

Answer 5

Dividends Received deduction
Only 20% is taxable
This is when one domestic corporation pays another domestic corporation a dividend

Question 6

Permanent differences- corporate federal taxes paid

Answer 6

Not an allowed deduction for taxes

Question 7

FTA (DTL) - installment sales

Answer 7

GAAP - you can accrue
Tax - not taxable until cash received

Question 8

FTA (DTL) - long term contracts / % of completion

Answer 8

GAAP - record rev over time
Tax - only when contract completed & rev received

Question 9

FTA (DTL) - depreciation

Answer 9

GAAP - straight line
Tax - accelerated

Question 10

FDA (DTA) - warranty claims

Answer 10

GAAP - accrued
Tax - only deduct when paid

Question 11

FDA (DTA) - income received in advance

Answer 11

GAAP - unearned revenue
Tax - recorded when received

Question 12

Three ways to be tested for deferred taxes

Answer 12

1. What is current federal tax liability = credit (payable)
2. What is current portion of income tax expense = debit (expense)
3. What current provision for taxes = debit (expense)