F6

Question 1

A Temporary difference that decreases future taxable income

Answer 1

Results in the recognition of a deferred tax asset, which will be reported as a non current asset.

ALL deferred tax assets (DTA) and deferred tax liabilities (DTL) are reported as NON-CURRENT on the balance sheet

Question 2

Deferred tax liability shown as a non-current deferred tax liability is based on what enacted rate

Answer 2

Is based on the expected rate to apply in future periods. In the years the liability is expected to be settled

All deferred tax assets and deferred tax liabilities are reported as non-current

Question 3

When preparing interim financial statements

Answer 3

Income tax expense is estimated each quater using the EFFECTIVE TAX RATE expected to apply to the entire year.

Question 4

Permanent differences

Answer 4

There are no deferred taxes for permanent differences. So the types of amounts of existing permanent differences do not have to be disclosed.

The amounts of temporary differences and types of operating loss and tax credit forwards should be disclosed

Examples of Permanent differences:

• Tax exempt interest (muni bonds, state)
• Life insurance proceeds on officers key man policy
• life insurance premiums when corporation is a beneficiary
• certain penalties, fines, brides, kickbacks
• nondeductible portion of meal and entertainment expense
• dividends-received deduction for corporation
• Excess percentage depletion over cost deletion

Question 5

when to recognize a tax benefit that qualifies for measurement

Answer 5

if the amount has more than 50% chance of occurring. that could be a probability or a CUMMULATIVE probability.

Question 6

how to compute deferred taxes?

Answer 6

RULE: deferred taxes should be computed based upon the enacted tax rates when the difference will revese

Question 7

Deferred Tax Liability

Answer 7

When Taxable income is less than book income

when depreciation