FAR-Deferred Taxes Flashcards
What two items make up the provision for taxes?
Current Taxes + Deferred Taxes
How are deferred taxes calculated?
Temporary Difference * Estimated Future Tax Rate.
What is the Deferred Tax Asset Valuation Allowance?
A contra account to reduce Deferred Tax Asset when it is more likely than not that a portion of the deferred tax asset will not be realized. When the Valuation Allowance account is used, Income Tax Expense is debited.
In the event that the deferred asset is realize after a valuation allowance has been set up, the contra account is debited and the future expense is credited.
How are cash dividends received, and income from the equity method handled?
The difference between the two is a temporary difference as income from the equity method will eventually be received.
How is the Dividend Received Deduction (DRD) handled within the deferred tax calculation table?
It is treated as a permanent difference.
What is the carry forward and backward of Net Operating Losses (NOLs)?
Can go back two years and forward 20 years.
When is a deferred tax liability created?
Book Expense LESS THAN Tax Expense
Book Income GREATER THAN Taxable Income
When is a deferred tax asset created?
Book Expense GREATER THAN Tax Expense
Book Income LESS THAN Taxable Income
What are the parts of the table, that is similar to an M-1 reconciliation, that is used to calculate tax payable?
Pretax Book Income \+/- Permanent Difference = Book Taxable \+/- Temporary Difference =Taxable Income X Current Tax Rate = Current Tax Liability Less: Prepayment = Tax Payable
Of temporary differences, permanent differences, and NOL, which should be disclosed in the financial statements?
Temporary Differences and NOL.
Different tax rates will be presented in questions to throw you off. What is the name of the rate used to calculated tax due to the IRS?
Effective Annual Income Tax Rate.
When applying the operating loss carry forward (NOL), how much of the carry forward can be used in a given year?
The total carry forward available*the effective tax rate.
When applying the difference between tax and book depreciation, how is the impact on tax benefit/liability calculated?
Difference of the depreciation*effect tax rate.
Under GAAP, what is the name of the approach used to determine income tax expense?
Asset and liability approach.
What is always the result of the completed contract and percentage of completion methods on income tax assets and liabilities?
Both methods will always result in a deferred tax liability because no profit other than cash payments made is recognized in taxable income until the very end of the contract.
What kind of liability or asset is created by differences in depreciation?
Noncurrent. Differences from depreciation are always noncurrent.
If depreciation for tax is GREATER than depreciation for financial purposes, what kind of difference is created?
The result is a temporary difference that is noncurrent. It is non current as a result of being from depreciation.
For instance, if Depreciation for Taxes is $18k, and depreciation for financial purposes is $10k, then there is a temporary difference of $8k.
This temporary difference would be subtracted to find taxable income.
What kind of difference (temporary or permanent) is created when there is a difference between Book and Tax depletion expense?
They are treated as a permanent difference
Under GAAP, how are deferred assets and liabilities netted?
Current assets may be netted with current liabilities. Noncurrent assets may be netted with Noncurrent liabilities.
Current and Noncurrent components should not be netted.
How is a temporary difference defined?
An item is included in the calculation of net income in one year and in taxable income in a different year.
How is permanent difference defined?
An item is no longer taxable due to a change in the tax law.
What are the permanent differences
Municipal Bond (not taxable)
Dividends Received Deduction (Not a book deduction)
Life Insurance Expenses (When company is beneficiary)
Life insurance proceeds
Finds or penalties (not tax deductible)
50% meals and entertainment (100% for book, so 50% is permanent difference?)
Federal income payments
