F5 M6

Question 1

current income tax expense calculation

Answer 1

taxable income * tax rate for CY

Question 2

total income tax expense calculation

Answer 2

pretax income * CY tax rate
OR
current tax liability - deferred tax asset
OR
current tax liability + deferred tax liability

Question 3

deferred tax expense calculation

Answer 3

deferred tax calculated * enacted tax rate in future periods

Question 4

permanent difference

Answer 4

a difference that impacts taxable income or book income, but not both

Question 5

temporary difference

Answer 5

difference between the tax basis of an asset or liability and reported amt in F/S

Question 6

effective tax rate calculation

Answer 6

=income tax expense/pretax income

Question 7

when do deferred tax liabilities arise?

Answer 7

when future taxable income will be greater than future book income due to temporary differences
-less taxes paid now, more in future

Question 8

when do deferred tax assets arise?

Answer 8

when future taxable income will be less than future book income due to temporary differences
-more taxes paid now, less in future

Question 9

when must an entity establish a valuation allowance for deferred tax assets?

Answer 9

evidence that indicates the entity will not realize the tax benefits

Question 10

what is intraperiod allocation?

Answer 10

matches a portion of provision of income tax to applicable components of net income and retained earnings

Question 11

intraperiod tax allocation apportions total tax provision for financial accounting purposes in period between income or loss between:

Answer 11

1) income from continuing operations
2) discontinued operations
3) accounting principle change (retrospective)
4) OCI
5) RE for prior period adjustments and accounting principle changes (retrospective)
6) items of AOCI

Question 12

what is the asset and liability approach?

Answer 12

method requires that either income taxes payable or deferred tax liability (asset) be recorded for all tax consequences of current period

Question 13

permanent differences are either:

Answer 13

nontaxable
nondeductible
special tax allowances

Question 14

examples of permanent differences

Answer 14

1) tax-exempt interest (municipal, state) subtract if income
2) life insurance proceeds on officer’s key person policy (add back to tax income because subtracted for book income)
3) life insurance premiums when corporation is beneficiary (add to tax income)
4) penalties, fines, bribes, kickbacks etc. (add to tax income)
5) nondeductible portion of meal and entertainment expense
6) dividends-received deduction for corporations
7) excess % depletion over cost depletion

Question 15

deduction for business interest expense

Answer 15

= business interest income + 30% of adjusted taxable income

Question 16

deferred tax liability occurs

Answer 16

1) revenues and gains on F/S income before taxable income
2) expenses and losses deducted on taxable income before F/S income

Question 17

deferred tax asset occurs

Answer 17

1) revenues and gains on taxable income before F/S income
2) expenses and losses deducted on F/S income before taxable income

Question 18

examples of DTL temporary differences

Answer 18

1) installment sales
2) depreciation expense
3) amortization expense
4) prepaid expenses
5) equity method (undistributed dividends)
6) contractors accounting (% vs. completed)

Question 19

examples of DTA temporary differences

Answer 19

1) bad debt expense (allowances vs. direct write off method)
2) estimated liability/warranty expense
3) start-up expenses
4) prepaid rent (unearned)
5) prepaid interest (unearned)
6) prepaid royalties (unearned)

Question 20

journal entry to reverse DTL

Answer 20

Dr. Deferred tax liability
Cr. Income tax benefit -deferred

Question 21

journal entry to record taxes in current year (DTL)

Answer 21

Dr. Income tax expense - current
Dr. Income tax expense - deferred
Cr. Deferred tax liability
Cr. Income tax payable

Question 22

valuation allowance of DTA

Answer 22

-it is more likely than not that > 50% that part of or all of DTA will not be realized

Question 23

journal entry to record taxes in current year (DTA)

Answer 23

Dr. Deferred tax asset
Dr. Income tax expense - current
Cr. Income tax payable
Cr. Income tax benefit - deferred

Question 24

journal entry to reverse DTA

Answer 24

Dr. Income tax expense - deferred
Cr. Deferred tax asset

Question 25

journal entry for valuation allowance

Answer 25

Dr. Deferred tax asset
Dr. Income tax expense - current
Cr. Deferred tax asset valuation allowance
Cr. Income tax benefit -deferred
Cr. Income tax payable