DTL/DTA

Question 1

Temporary differences

Answer 1

Key difference is timing. These differences will reverse over time. Taxable or deductible on the tax return in a different period than reported on the books.

Question 2

Temp differences are used in both the calculation of current tax expense/benefit and the calc of deferred tax expense/benefit

Answer 2

True

Question 3

Perm difference - does not get counted in GAAP or Fin Accounting At all (only get considered in Tax ) or when an expense or income item reported on the books is neither deductible nor taxable under current tax law.

Answer 3

E.g. Tax penalties, penalties paid for legal violations, company receives life insurance proceeds received on the death of key employees and interest earned on municipal bonds.

Question 4

DTL - book income will always be higher than the taxable income

Answer 4

True (Due to temp difference) e.g. Rent receivable

Question 5

DTA - Book income is lower than the tax income

Answer 5

Tax in Fin accounting is more than tax e.g of DTA (Warranty expense, unearned rent, royalty and interest received in advance, credit loss expense)

Question 6

1. Revenue or Gains
2. Expenses or Losses

Answer 6

Book income Tax return

1. Revenue later Taxable now
2. Expense Now Deductible later

Question 7

Book expense < Tax expense
Book Income > Taxable income

Answer 7

DTL

Question 8

Book expense > Tax expense
Book income < Taxable income

Answer 8

DTA

Question 8

EFR pr effective rate

Answer 8

= Total Income Tax Expense/Pretax Book Income

Question 9

Temporary difference during the reporting period * Future enacted tax rate

Answer 9

=DTL or DTA

Question 10

DTA

Answer 10

Non-current asset

Question 10

Less than 50% chance tax position will be allowed by tax authorities

Answer 10

No tax benefit recognized

Question 11

NOL carryforward > 80% Taxable Income

Answer 11

NOL deduction limited to 80% of TI

Question 11

NOL Carryforward <80% of Taxable Income

Answer 11

100% of NOL deductible (no limitation)

Question 12

More than 50% chance tax position will be allowed by tax authorities

Answer 12

Largest possible estimated outcome with a cumulative probability >50% is recorded as tax benefit

Question 13

Cumulative temp difference * enacted/future tax rate

Answer 13

DTL

Question 14

DTL resulting from temporary differences happens when Book expense is less than tax expense

Answer 14

e.g. (1) Excess tax depreciation
(2) Investments accounted for under the equity method for books
(3) Installment sales method used for tax
(4) Prepaid expenses (cash basis for tax)
(5) Goodwill (15 year amortization for tax)

Question 15

Permanent differences do not affect deferred taxes so zero ___________

Answer 15

DTL or no DTL to be reported

Question 16

Rent received in advance will be added to determine TI
Subtract - Depreciation deducted for income tax purposes in excess of Depreciation deducted for financial statement purposes.

Answer 16

True

Question 17

Valuation allowance is subtracted from DTA

Answer 17

True, Balance sheet for deferred taxes (income tax payable is not considered)

Question 18

DTA - Reduces future income tax expense (i.e. taxes saved) when temporary differences reverse

Answer 18

DTL - Increases future income tax expense (i.e. more tax due to be paid) when temporary differences reverse

Question 19

As per GAAP, justification for the method of determining periodic deferred tax expense is based on the concept of ___________

Answer 19

Recognition of assets and liabilities

Question 20

VALUATION ALLOWANCE - JE

Answer 20

Income tax expense Dr. XXX
Valuation Allowance XXX

Question 21

Disclosure requirements for deferred taxes

Answer 21

1. Total DTLs, Total DTAs, Total DTA valuation allowances and net change in allowance
2. Nature and type of tax effect of each difference and carryforward amount
3. Operating loss carryforwards and expiration dates
4. Tax credit carryforwards and expiration dates

Question 22

Subtract what you receive and Add what you Pay

Answer 22

DTL and DTA

Question 22

Effective tax rate

Answer 22

Current tax expense/Pretax Income

Question 23

Total expense for year 3

Answer 23

= Current Income tax for year 3 + Deferred Income tax for year 3

Question 24

DTL-Subtract
DTA - Add

Subtra

Answer 24

However when beginning and ending balances of DTA and DTL are provided and u need to calculate current year income tax expense. Subtract DTA and Add DTL

Question 25

DTL

Answer 25

Cannot immediately deduct it for tax purposes