F5 Inv, CF, Income Taxes Flashcards
M1 M2 M3 M4 M5 M6 M7
F5 M7 Calculate Y1 current portion of income tax provision i.e current tax expense
= taxable income * current effective income tax rate Y1
Calculate deferred income tax liability/asset
= pretax income * tax rate enacted future
Explain difference between temporary asset and liability
Asset: decreases future taxable income; and financial income must be less than taxable income and amount it will be less is deferred tax asset / tax rate
Liab: temporary taxable differences add to taxable income; and financial income exceeds taxable income b and difference is calculated by differed amount / (1-tax rate)
- deferred tax assets & liab are netted in B/S reported as non-current
Calculate deferred portion of provision for income taxes in Y1 I/S
Determine deferred taxes payable for each year of future (Y2, Y3, Y4) and add each = Depreciation - warranty accrual * enacted tax rates
Deferred tax disclosures:
disclosures will be on types/amounts of existing temporary differences and nature of operating loss and carry-forward. Permanent differences are not deferred taxes therefore no need to be disclosed.
What is difference between carry-back and carry-forward treatment in income Tax?
Carry-back in B/S is shown as tax refund receivable and is separate from deferred taxes; while carry-forward is a tax benefit = net operating loss carry-forward amount * appropriate tax rate and used to determine max income tax benefit.
Operating loss can be carried forward indefinitely; limit of carry-forward = taxable income * (100%- tax rate). If limit exceeds net operating loss carry-forward than entire net operating loss carry-forward is used.
If a tax benefit of loss carried forward reduces current tax payable on continuing operations than I/S will include benefit of loss in income continuing operations
Difference between calculate total income tax expense v income tax for Quarter:
Total income tax expense is operating income * effective income tax rate.
JE is DR Deferred Tax asset, CR income tax benefit While Income tax expense for quarter is year to date income * effective tax rate - previous quarter income tax expense
Calculate income tax expense:
= income tax payable - deferred tax asset.
a) income tax payable = taxable income * current tax rate
b) deferred tax asset= taxable difference * enacted tax rate
JE is DR income tax expense and deferred tax asset; CR is income tax payable
F5 M6 What are is difference between temporary and permanent differences
Temporary is revenue and expense items included in NI that are taxable in a difference year while permanent are neither taxable or deductible due to change in tax law
- temporary examples:
a) liability: excess tax depreciation, selling equipment on installment note, installment sales, prepaid insurance, LT loss accrual in excess of deductible amount
b) asset: accrued warranty costs, Switch between depreciation double declining to straight-line meaning deferred tax asset will decrease - permanent examples: premium insurance, municipal bonds, insurance proceeds, nontaxable interest received on municipal securities
What is difference between tax liab and assets in temporary differences?
deferred tax assets is future benefit, will occur when taxable income reported on tax returns exceeds pretax income in current period on I/S. Deferred liab is expenses that hit tax form as deductible before represented on I/S and revenues hit I/S before hit tax forms
What is final year of asset accelerated depreciation records tax liab which is a debit of
(asset f/s basis - tax basis ) * tax rate
How do adjustments to net income impact cash from operating actives?
a) Current assets decrease = added to NI b/c cash increases
b) current assets increase = subtracted from NI b/c use of cash
c) Current Liab increases = added to NI b/c increases cash
d) Current Liab decreases = subtracted from NI b/c use of cash
Basically gains are subtracted from NI and losses are added to NI
F5 M 5 What are examples of financing, operating, investment activities?
a) financing : LT liab & equity, dividends (does not affect NI, rather affects RE), common stock, mortgage payment, bonds payable, LT debt, principal payment
b) operating: carrying value of equipment sold in cash, deferred tax liab, accounts payable, accrued interest payable, tax attributable amount from a gain
c) investing: sale of building (LT assets), cash of equipment, any PPE actions, new office building bought on common stock, available for sale securities, held to maturity security, purchase of bonds payable
Disclosures for interest paid and capital lease payable, conversion of debt to equity, Financing note for asset
- note payable is not a cash outflow
Calculate depreciation expense used in CF
accumulated depreciation= after disposal NBV (no plus or minus ) + Y2 amount acquired asset
a) Beg Y1 Dec NBV =PPE - acc dep
b) End Y2 Dec = NBV of eq
c) After disposal NBV = Y2 NBV- Y1 NBV + gain (given in probelm)
How to calculate actions for investing section?
a) calculate equipment sale: equipment sold at gain, amount for investing section is carrying amount + gain
OR
sale of equipment - purchase of equipment .. DR cash and acc dep, CR gain and equipment
b) new office building bought on common stock = par value per share * # common shares.
c) buying a forklift cash downpayment
