Deferred Taxes Flashcards
What is a temporary difference related to deferred taxes?
GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another
Example: Dividends from a subsidiary accounted for using the Equity Method - tax income but not book income
What is a deferred tax asset?
Deduction will reduce future income taxes expense.
What is a deferred tax liability?
Income will be taxable in a future period and will increase future tax expense
Which period’s tax rate is used to calculate a deferred tax asset or liability?
The FUTURE enacted tax rate not the current one.
It is never discounted to present value.
What valuation allowance is used with respect to a deferred tax asset?
If it isprobable that not all of a Deferred Tax Asset (debit) will be realized then the Deferred Tax Asset account must be written down (credit) to reflect this
What effect do permanent differences have on deferred income taxes?
They have no tax impact.
When calculating the total differences between book and tax income subtract the permanent differences from the total before applying a future enacted tax rate
What is deferred income tax expense?
The sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities
GAAP Method for calculating is theAsset and Liability Approach
Note: IFRS uses the Liability approach only
How are deferred tax assets classified as current or non-current on the balance sheet?
Current Deferred Tax Assets and Liabilities will impact income tax expense within 12 months. All current amounts are netted and reported as a single amount on the Balance Sheet
Non-Current Deferred Tax Assets and Liabilities will impact income tax expense 12 months or more fromt he Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet
A temporary adjustment that DECREASES future taxable income results in a…?
Deferred Tax Asset
A temporary adjustment that INCREASES future taxable income results in a ….?
Deferred Tax Liability
An increase warranty expense OR Deferred compensation liability results in a….
DTA
An increase in prepaid insurance OR rent receivables results in a…
DTL
Justification for the method of determining periodic deferred tax expense is based on the concept of?
Recognition of assets and liabilities
Income recognized in the F/S before it is reported as taxable income results in a?
DTL
Rent paid in advance is a (+/-) to taxable income
Addition to taxable income
Interest from municipal bonds is a(+/-) to taxable income
subtract from taxable income
Tax Depreciation > Book depreciation is a (+/-) to taxable income
Subtract from taxable income. DTL
Book Depreciation > Tax depreciation is a (+/-) to taxable income
Addition to taxable income. DTA
Interest received on municipal bonds OR Premium on officer’s life insurance is an example of a (temp/perm) difference.
Permanent difference to taxable income. NEVER included in taxable income.
Pretax income > Taxable income
Results in a liability
Pretax income
Results in an asset
Life insurance premiums is a (+/-) to taxable income
Addition to taxable income
Warranty Expense is is a (+/-) to taxable income
Addition to taxable income
What should not be disclosed in the company’s financial statements related to deferred taxes?
Types and Amounts of existing permanent differences
