Deferred Taxes Flashcards
What tax benefit should be recognized when there are multiple scenarios? (uncertain tax position)
The amount of tax benefit that is associated with the largest amount for which the cumulative probability of realization exceeds 50%
What is the formula to calculate taxable income with taxable differences?
- Pretax income
- Tax revenue more than book revenue
- -Book revenue more than tax revenue
- Tax expenses more than book expenses
- Book expenses more than tax expenses
- = Taxable income
What are some permanent taxable differences ?
- REVENUES
- State & munipal bond interest income - not tax income, SUTRACT
- Life insurance on officers -not tax income, SUTRACT
- EXPENSES
- Fines & penalties - not deductible - ADD
- Non-deductible portion of meals - not deductible - ADD
- Life insurance premiums - not deductible - ADD
- Percentage depletion - cost depletion- not deductible - ADD
- Investment int. income in excess of Invest income - not deductible - ADD
- Special - dividend received deduction - Not book income, tax income, SUBTRACT
What are some example of deferred tax liabilities and how are they treated?
- Deferred tax liability - less tax now, going to be tax in the future.
- SUBTRACT from taxable income
- Non Current liability
- Accelerated depreciation
- Equity method for book vs. cost for tax
- Accrual sales vs. installment for tax
- Prepaid expenses for book vs. cash for tax
What are some examples of deferred tax asset and how are they treated?
- Future tax deduction - will cause less tax in future period
- Non Current Asset
- ADD to Taxable F/S Income
- Bad debt expense for book vs. direct write off for tax
- Warranty expense for books vs. Warrant payouts for tax
- Rent and Royalties received in advance for book vs taxable when received
- Contingent liabilities accrued for book not for tax
What tax rate is used to measure deferred tax assets and deferred tax liability?
Enacted tax rate for future years.
When enacted tax rates change, deferred taxes are adjusted and recorded in income for continuing operations in the period change was enacted.
How are taxes payable recorded on the balance sheet?
Non current asset for DTA
Non current liability for DTL
Deferred taxes are netted against each other (as ong as for the same taxing authority)
Current liability for taxes payable and due next year
What are the required disclosures for tax position?
- Total of all deferred tax liabilities and total of all deferred tax assets
- Total valuation allowance recognized for deferred tax assets and the net change during the year in valuation
- Approximate tax effect of each type of temporary difference and carryforward which is a signifcant portion of DTA/DTL
What is intraperiod tax allocation?
Allocating income taxes to key components of the financial statements (continuing ops, disco ops, OCI)
What is the basis for current tax expense?
Amount of income tax liability, plus the sum of the net changes in deferred tax assets and deferred tax liabilities.
This is no longer based on the matching principal, but seeks to accurately reflect the recognition of assets and liabilities (FASB 109).
What is the calculation for deferred income tax asset of liability?
- income tax expense or benefit
- deferred income tax expense or benefit
- = current tax liability.
- The deferred income tax expense or benefit can further be described as the net change in both types of deferred tax accounts.
How do you calculate DTL on dividends received deductions?
For F/S purposes, income is based on earnings, but for taxes, it is based on dividends received x deduction. DTL is the difference.
- Income from investee - dividends received
- times (1-deduction rate)
- time tax rate
- = deferred tax liability
