Deferred Taxes Flashcards
1
Q
What is formula for tax liability?
A
Pretax Book Income \+/- Permanent Difference = Book Taxable \+/- Temporary Difference = Taxable Income x Current Tax Rate = Current Tax Liability Less Prepayment = Tax Payable
2
Q
What are examples of permanent differences?
A
Municipal bond interest Dividends received deduction Life insurance expense Life insurance proceeds Fines or penalties 50% meals and entertainment Federal income tax payments Percentage depletion versus cost depletion
3
Q
What are examples of deferred tax liabilities?
A
Accelerated depreciation method for tax Installment sales method for tax Prepaid expenses Goodwill Rent receivable
4
Q
What are examples of deferred tax assets?
A
Warranty expense
Rent, royalty, and interest received
Bad debt expense
Contingent liabilities
5
Q
What is formula for deferred tax liability?
A
Book Expense < Tax Expense
Book Income > Taxable Income
6
Q
What is formula for deferred tax asset?
A
Book Expense > Tax Expense
Book Income < Taxable Income
7
Q
What is the effective tax rate?
A
Income Tax Expense / Net Income before Taxes
8
Q
When is a deferred tax asset valuation allowance established?
A
When the company determines it is more likely than not (50% or more) that some or all of asset will not be realized
