Deferred Taxes Flashcards
What is a taxable temporary difference
DTL. A temporary difference that will result in an increased tax liability when reversed
What is a deductible temporary difference
DTA. A temporary difference that will result in a decreased tax liability when reversed
How do you record a DTL
How do you record the reversal of a DTL
How do you record a DTA
How are DTAs and DTLs reflected on the balance sheet
Non current liabilities/assets. Taxes payable are a current liability
When do DTAs arise
When taxable income is higher than book income
(tax basis > book basis)
When do DTLs arise
When book income is higher than taxable income
(book basis > tax basis)
What is the formula for calculating income tax payable
Income tax expense + deferred tax asset - deferred tax liability
Changes in this year of the DTA/DTL
How and when do you record a tax valuation account
Debit: Income tax expense deferred
Credit: deferred tax asset valuation account
When there is more than a 50% probability that a certain DTA will not be realized, place the value of unrealizable DTA in the valuation account
Debit: ITE (deferred) $8000’
Credit: DTA Valuation allowance $8000
How do you account for uncertain tax positions
When it is more likely than not (50%) that if taken to court the deduction will be allowed. Recognize the tax liability/position with the highest potential of being sustained
How do you account for changes in future tax rates
Readjust the DTL/DTA accounts to that tax rate using reversing entries or regular entries
What are the rules on NOL carry forward
No carryback and carryforward indefinitely
Can offset up to 80% of taxable income
