Financial Statement Accounts 2

Question 1

What basis of accounting is used for recognizing expense for compensated absences?

Answer 1

The basis is accrual.

Question 2

When is the expense associated with compensated absences accrued, even if the benefits do not vest or accumulate or if the obligation is not attributable to services rendered as of the balance sheet date?

Answer 2

When it is probable that benefits will be paid, and the amount is estimable.

Question 3

When is an amount less than the total benefit earned by employees accrued?

Answer 3

When not all earned benefits are expected to be paid.

Question 4

What is the exception to the requirement that compensated absence expense be accrued?

Answer 4

Sick pay benefits.

Question 5

What is the most likely recognition of the effect of a pay raise between the time of recognition of compensated absence liability and payment?

Answer 5

Increase in expense in the period of payment.

Question 6

What is the meaning of “accumulate” in the context of compensated absences?

Answer 6

Benefits carry over to future periods although there may be limits.

Question 7

List the three attributes of defined benefit plan accounting.

Answer 7

1. Delayed recognition; 2. Net reporting; 3. Offsetting.

Question 8

At what amount are plan assets reported?

Answer 8

Fair value.

Question 9

Define “projected benefit obligation (PBO)”.

Answer 9

Obligation for defined benefit plans.

Question 10

List the outside entities that provide services for a sponsoring firm’s defined benefit plan.

Answer 10

Actuary and Trustee provide services for this.

Question 11

Define “service cost” as it relates to pension plans.

Answer 11

Amount of pension expense reported if interest cost and expected return are equal. It is the present value of benefits earned for a period.

Question 12

What is the basis of accounting for defined benefit plans?

Answer 12

Accrual is the basis of accounting for these plans.

Question 13

List the two important estimates in pension accounting.

Answer 13

1. Discount rate; 2. Expected rate of return.

Question 14

List the two types of pension plans.

Answer 14

1. Defined benefit; 2. Defined contribution.

Question 15

Define “pension expense”.

Answer 15

The cost to the firm of providing the pension benefits earned during the year.

Question 16

What is the pension liability balance for a defined contribution plan?

Answer 16

Amount of required contribution not paid.

Question 17

What is the term used for pension plans for which employees provide contributions?

Answer 17

Term used for these pension plans is Contributory.

Question 18

List the features of defined benefit and defined contribution plans.

Answer 18

Plans can be contributory or noncontributory.

Question 19

Define “interest costs” as they relate to pension plans.

Answer 19

Growth in pension obligation for a period.

Question 20

List the formula for the amount of return used in computing periodic pension expense.

Answer 20

Expected return = rate of return X beginning plan assets.

Question 21

What fund is available for retirement benefits?

Answer 21

Pension assets at market value.

Question 22

How do we compute the interest cost for a pension plan for a period?

Answer 22

Discount rate X beginning projected benefit obligation (PBO).

Question 23

What is the effect of recording the first three components of pension expense on pension liability?

Answer 23

Increase by the amount of pension expense.

Question 24

What is the formula for computing projected benefit obligation (PBO)?

Answer 24

Service cost to date + interest cost to date - benefits paid to date.

Question 25

What is the effect of recording funding contributions on pension liability?

Answer 25

Decrease by amount of contribution.

Question 26

What is the effect of payment of retirement benefits on pension liability?

Answer 26

There is no effect.

Question 27

What method is used to compute prior service cost (PSC) amortization?

Answer 27

Straight-line or service method.

Question 28

List the formula used to calculate projected benefit obligation (PBO) ending amount through prior service cost.

Answer 28

Service cost to date + interest cost to date - benefits paid to date + prior service cost.

Question 29

List the two significant changes to which defined benefit plans are subject.

Answer 29

1. Prior service cost; 2. Pension gains and losses.

Question 30

What is the prior service cost amortization method that recognizes more amortization in periods when more employees are working?

Answer 30

Service method.

Question 31

Define “formal record” as it relates to pension plans.

Answer 31

The pension information maintained in the accounts.

Question 32

What amount is subject to amortization for prior service grant amendments?

Answer 32

The initial present value of the increased benefits for service already rendered.

Question 33

What accounts are prior service cost and pension gains/losses recognized in immediately?

Answer 33

They are recognized in other comprehensive income and pension liability.

Question 34

What immediate changes in projected benefit obligation (PBO) will cause a change in pension liability?

Answer 34

Prior service cost (PSC) and PBO gains and losses.

Question 35

What is the amount subject to periodic amortization for pension gains and losses?

Answer 35

Net gain or loss at the beginning of the period.

Question 36

What is the amortization method that can result in no amortization even if there is a beginning net gain or loss?

Answer 36

Corridor (minimum) method.

Question 37

List the two sources of pension gains and losses.

Answer 37

Changes in projected benefit obligation (PBO) and difference between actual and expected return.

Question 38

What types of accounting transactions affect pension gains and losses?

Answer 38

Recognition of gains and losses; amortization of net gain or loss.

Question 39

What is the effect of actual future life expectancy exceeding previous estimates?

Answer 39

Projected benefit obligation (PBO) increase (PBO loss).

Question 40

How do we compute projected benefit obligation (PBO) at the balance sheet date?

Answer 40

Service cost to date + interest cost to date - benefits paid to date + prior service cost + or - net PBO gain or loss to date.

Question 41

What is the effect of an increase in future life expectancy to a pension plan?

Answer 41

Projected benefit obligation (PBO) increase (PBO loss).

Question 42

True or False: The amortization of the net gain or loss at the beginning of the year is a component of pension expense.

Answer 42

This is a true statement.

Question 43

What is the formula for ending net gain or loss subject to amortization the following period?

Answer 43

Beginning net gain or loss - amortization of the beginning amount +/- Projected benefit obligation (PBO) change in the period + /- asset gain or loss.

Question 44

List the criteria for recognition of nonretirement postemployment benefits on the accrual basis.

Answer 44

Obligation attributable to employee services already rendered; rights vest or accumulate; payment is probable; amount is estimable.

Question 45

Which benefits are less uniform: nonretirement postemployment benefits or compensated absences?

Answer 45

Nonretirement postemployment benefits are less uniform.

Question 46

When is the accrued amount for nonretirement postemployment benefits less than the total benefit earned by employees?

Answer 46

When not all earned benefits are expected to be paid.

Question 47

List the conditions under which the accrual of a liability for postemployment benefits are necessary.

Answer 47

1. When the benefits meet the four criteria of “Accounting for Compensated Absences;” also 2. When the benefits not meet those four criteria, then “Accounting for Contingencies” is followed.

Question 48

What basis of accounting is used for recognizing expense for nonretirement postemployment benefits?

Answer 48

The basis is Accrual.

Question 49

List the steps in computing obligation for retirement benefits.

Answer 49

Compute EPBO (present value of benefits expected to be paid); then multiply EPBO by the fraction of the service period required represented by service to date (yields APBO).

Question 50

What basis of accounting is used for recognizing the expense for retirement benefits other than pensions?

Answer 50

The basis is Accrual.

Question 51

When is there no amortization of transition obligation for postretirement benefit expense?

Answer 51

When firms elected to recognize immediately the entire Accumulated Postretirement Benefit Obligation (APBO) as an accounting change, decreasing income in the year of transition.

Question 52

What is the largest in magnitude in terms of postretirement benefit costs?

Answer 52

Postretirement healthcare coverage.

Question 53

List the six components of postretirement benefit expense.

Answer 53

1. Service cost; 2. Interest cost; 3. Expected return on assets; 4. Amortization of prior service cost; 5. Amortization of net gain or loss at Jan. 1; 6. Amortization of transition obligation.

Question 54

Beyond what date is no further service cost recognized for an employee?

Answer 54

Full eligibility date.

Question 55

On what date does an employee meet the requirements to receive the levels of benefits expected to be paid?

Answer 55

Full eligibility date.

Question 56

What is the primary measure of postretirement benefit obligation?

Answer 56

Accumulated Postretirement Benefit Obligation (APBO).

Question 57

How are compensation expenses reported?

Answer 57

Reported as a component of income from continuing operations.

Question 58

How is compensation expense determined after a change in estimated forfeitures?

Answer 58

Compensation expense in period of change is the amount resulting in total compensation through the period of change that equals the fraction of service period elapsed multiplied by the new estimate of total compensation expense.

Question 59

What effect does the fair value of one option have on a stock price at grant date?

Answer 59

Higher prices yield higher fair values.

Question 60

What is the accounting effect of the expiration of stock options?

Answer 60

No change in compensation expense or owners’ equity.

Question 61

What is the total compensation expense for a fixed stock option plan?

Answer 61

The fair value at grant date of options expected to vest.

Question 62

How is compensation expense for a stock option plan measured?

Answer 62

Fair value of options granted are estimated using an option pricing model at grant date.

Question 63

What is the effect of expected forfeitures on compensation expense recognized?

Answer 63

Reduces total compensation expense.

Question 64

On what date is total compensation expense determined for a fixed stock option plan?

Answer 64

Grant date.

Question 65

List the criteria for noncompensatory employee stock options plans.

Answer 65

1. Essentially all employees can participate; 2. Employee must decide within one month of firm setting the stock price to enroll in the plan; 3. Discount does not exceed employer cost savings inherent in issuing directly to employees; 4. Purchase price based solely on market price of the stock; 5. Employees can cancel their enrollment before purchase date for refund.

Question 66

What does a stock option plan provide an employee?

Answer 66

Provides an employee with the option to purchase shares of employer firm stock at a fixed price in the future, after a reasonable service period.

Question 67

What is the period over which compensation expense is recognized for a fixed stock option plan?

Answer 67

Service period - grant date to first exercisable date.

Question 68

What is the net effect of accounting for a fixed option plan (assuming the options do not expire)?

Answer 68

Cash and owners’ equity are increased by the cash paid in by the employees; retained earnings are reduced by the amount of compensation expense recognized.

Question 69

What is the general treatment of option plans with vesting contingent on meeting a stock price target?

Answer 69

Same as fixed stock option plans if the target is met.

Question 70

List the acceptable approaches to accounting for graded vested option plans.

Answer 70

Treat as one plan or treat each group with different vesting dates as different plans.

Question 71

What is the accounting effect when no stock options are expected to vest because the performance target is not expected to be met?

Answer 71

Reverse compensation expense and the associated owner’s equity account for the amount of expense recognized in previous periods.

Question 72

What is the accounting effect when there is an expiration of option plans with vesting contingent on meeting a stock price target?

Answer 72

No change in compensation expense or owners’ equity.

Question 73

Describe the general approach to recognizing compensation expense for a performance option plan.

Answer 73

At end of each period, recompute total compensation expense based on performance level expected to be achieved. Recognize compensation expense for the period in the amount that results in total compensation through the period equaling the fraction of service period elapsed multiplied by the new estimate of total compensation expense.

Question 74

Define “graded vesting plans”.

Answer 74

Stock option plans that stagger the vesting dates.

Question 75

Define “stock award plans”.

Answer 75

Plans awarded for continuing employment, but the employee cannot sell the stock (the main restriction) until the award is vestedand the employee may not receive the shares until vested.

Question 76

What account is credited when net method is used to record compensation expense for a stock award?

Answer 76

Paid in capital from stock award.

Question 77

What account is credited when gross method is used to record compensation expense for a stock award?

Answer 77

Deferred compensation expense.

Question 78

Describe the accounting treatment of forfeitures of stock awards not previously estimated.

Answer 78

Reversal of previously recognized compensation expense.

Question 79

What is the total compensation expense to be recognized for a stock award?

Answer 79

Fair value of awarded stock at award date, less effect of estimated forfeitures.

Question 80

List the two methods of recording compensation expense for stock awards.

Answer 80

1. Gross method; 2. Net method.

Question 81

What compensation expense is associated with a stock award plan?

Answer 81

The number of shares awarded measured at the market price of the stock at grant date, recognized as expense over period the employee provides the service for which the grant was awarded.

Question 82

What is the classification of the deferred compensation expense account?

Answer 82

The classification is Contra owners’ equity.

Question 83

When can compensation expense be negative for a period?

Answer 83

When the stock price falls to a level causing total compensation expense through the end of the period to be less than compensation expense recognized in previously periods.

Question 84

What is the total compensation expense for stock appreciation rights (SARs) payable in cash?

Answer 84

Number of rights multiplied by the difference between the stock price at date of exercise, and the stock price at grant date.

Question 85

What is the fair value of the stock appreciation right (SAR) at the exercise date?

Answer 85

The difference between grant date price and the price at exercise date.

Question 86

Describe the features of a stock appreciation right (SAR).

Answer 86

1. Employee receives difference between stock price at grant date, and stock price at exercise date; 2. Pays nothing; 3. Specifies benefit in either cash or stock.

Question 87

What type of account is credited when periodic compensation expense is recognized?

Answer 87

The account credited is Liability.

Question 88

Define “current income tax provision”.

Answer 88

The amount of income taxes due for the year (same as income tax liability).

Question 89

Define “income tax expense”.

Answer 89

The account reported in the income statement that measures the income tax cost for the year’s transactions.

Question 90

Define “deferred income tax”.

Answer 90

The amount of income tax expense that is not currently due.

Question 91

Define “income tax liability”.

Answer 91

The amount of income tax the firm must pay on taxable income for a year.

Question 92

Define “interperiod tax allocation”.

Answer 92

The process of measuring and recognizing the total income tax consequences of transactions in the year.

Question 93

Define “taxable income”.

Answer 93

Income before tax for tax purposes.

Question 94

Define “pretax accounting income”.

Answer 94

Income before income tax for financial accounting purposes determined by applying GAAP.

Question 95

What causes income tax to increase?

Answer 95

Taxable items.

Question 96

Define “deferred income tax provision”.

Answer 96

1. The amount of income tax expense that is not currently due; 2. Equals the net sum of the change in the deferred tax accounts.

Question 97

Define “permanent difference”.

Answer 97

An amount that appears in the tax return or income statement but never both.

Question 98

What is the effect of a nontaxable revenue on income tax expense?

Answer 98

Income tax expense is not increased.

Question 99

Are current year or future permanent differences used in the current year tax accrual entry?

Answer 99

Current year is used.

Question 100

What is the effect of a nondeductible expense on income tax expense?

Answer 100

Income tax expense is not reduced.

Question 101

List some common permanent differences.

Answer 101

1. Tax-Free Interest Income; 2. Life Insurance Expense Premiums on key employee; 3. Proceeds from life insurance on key employee; 4. Dividends Received Deduction; 5. Fines and penalties.

Question 102

What general effect does income tax expense have on permanent differences?

Answer 102

The effect of a permanent difference on income tax expense is the same as its effect on the income tax liability for the period.

Question 103

What is the effect of a nontaxable revenue on income tax liability?

Answer 103

Income tax liability is not increased.

Question 104

If book depletion is $4,000 and tax depletion is $12,000, what is the amount of the permanent difference?

Answer 104

The amount is $8,000.

Question 105

Define “deductible temporary differences”.

Answer 105

Differences that initially cause a prepayment of taxes.

Question 106

What type of differences are temporary differences caused by regular warranties?

Answer 106

Deductible differences.

Question 107

Define “deferred tax asset”.

Answer 107

A current temporary difference that causes current book income to be less than taxable income.

Question 108

What type of differences are temporary differences caused by depreciation?

Answer 108

Taxable differences.

Question 109

Define “temporary difference”.

Answer 109

An item of revenue or expense that, over the total life of the item, will affect pretax accounting income and taxable income in the same total amount but will be recognized in different amounts in any given year for financial reporting and tax purposes.

Question 110

What temporary difference causes future taxable income to exceed future book income?

Answer 110

Taxable temporary difference.

Question 111

Are originating or future reversing temporary differences used in determining the change in deferred tax accounts?

Answer 111

Future reversing temporary differences are used.

Question 112

Define “taxable temporary differences”.

Answer 112

Differences that initially cause a postponement in the payment of taxes.

Question 113

Define “deductible difference”.

Answer 113

A temporary difference that causes future taxable income to be less than future book income is what type of temporary difference.

Question 114

What type of deferred tax accounts do deductible temporary differences cause?

Answer 114

They cause Deferred tax assets.

Question 115

True or False. Taxable temporary differences are differences which cause deferred tax liabilities.

Answer 115

True. They cause Deferred tax liabilities.

Question 116

List the two categories of temporary differences.

Answer 116

1. Taxable Temporary Differences; 2. Deductible Temporary Differences.

Question 117

What differences does the computation of income tax liability consider in terms of differences between book and tax?

Answer 117

It considers current period temporary and permanent differences.

Question 118

What tax rate should be used when computing the change in the deferred tax accounts?

Answer 118

Enacted future tax rates (which could be the same as the current tax rate if rates have not been changed).

Question 119

List the formula for computing the effect of a permanent difference on the effective tax rate.

Answer 119

Product of permanent difference and stated rate, divided by pretax accounting income.

Question 120

How is income tax expense for a period computed?

Answer 120

It is a derived amount or “plug” figure, the net change caused by the changes in deferred tax accounts and the income tax liability.

Question 121

How do permanent differences affect the tax accrual entry?

Answer 121

Taxable income excludes them; this exclusion is reflected in income tax expense - a plug figure.

Question 122

How is the required ending deferred tax liability balance expressed?

Answer 122

Product of sum of future taxable differences and the future enacted tax rate.

Question 123

What is the general formula for computing income tax expense?

Answer 123

Income tax liability plus or minus the change in the deferred tax accounts.

Question 124

How is the change in the deferred tax liability account for a period expressed?

Answer 124

Required ending deferred tax liability balance less beginning deferred tax liability balance.

Question 125

What tax rate is used for computing tax liability?

Answer 125

Current tax rate is the rate to apply.

Question 126

If the tax rate changes as income levels change, what rate is used to determine the change in deferred tax accounts?

Answer 126

Average future enacted tax rate is used to determine the change in deferred tax accounts.

Question 127

What effect does an originating deductible difference have on the tax accrual entry?

Answer 127

Increases the required ending deferred tax asset balance.

Question 128

What effect does a reversing taxable difference have on the tax accrual entry?

Answer 128

Decreases the required ending deferred tax liability balance.

Question 129

If future enacted tax rates are not the same as the current rate and future temporary differences originated in the current period, which rate(s) do(es) income tax expense reflect?

Answer 129

Both current and future enacted tax rates are reflected.

Question 130

How are temporary differences with no balance sheet account association classified?

Answer 130

Based on expected year of reversal.

Question 131

How are deferred tax accounts reported on the balance sheet?

Answer 131

Current assets and liabilities are netted. Noncurrent assets and liabilities are netted.

Question 132

Why is the procedure for offsetting deferred tax accounts reasonable given the nature of the underlying differences?

Answer 132

It is reasonable because future deductible and taxable differences will naturally cancel in the relevant future periods.

Question 133

List the four deferred tax accounts possible.

Answer 133

Classified separately, therefore: 1. Current deferred tax asset; 2. Noncurrent deferred tax asset; 3. Current deferred tax liability; 4. Noncurrent deferred tax liability.

Question 134

How is the classification of a deferred tax account determined?

Answer 134

Same as asset/liability that caused the temporary difference.

Question 135

How are deferred tax accounts offset for reporting?

Answer 135

Current accounts are offset; noncurrent accounts are offset; two net accounts remain for reporting.

Question 136

Short-term prepaid rent gives rise to what type of deferred tax account and how is it classified?

Answer 136

Current deferred tax liability.

Question 137

Organization costs give rise to what type of deferred tax account and how is it classified?

Answer 137

Deferred tax asset; classification depends on expected period of reversal.

Question 138

What is the classification of the valuation allowance for deferred tax assets?

Answer 138

The classification is contra deferred tax asset.

Question 139

List the evidence suggesting the need of a valuation allowance.

Answer 139

1. History of unused net operating losses; 2. History of operating losses; 3. Losses expected in future years; 4. Very unfavorable contingencies; 5. Very brief carryback or carryforward period.

Question 140

List the sources for realizing a deferred tax asset.

Answer 140

1. Expectation of future taxable income; 2. Taxable income in prior years w/i carryback period; 3. Future taxable differences; 4. Tax planning strategies.

Question 141

What does a history of unused net operating losses suggest?

Answer 141

Evidence suggesting that the deferred tax asset will not be realized.

Question 142

Compute the ending valuation allowance if the total future deductible difference is $4,000, tax rate is 30%, and only $1,000 of future taxable income is assured.

Answer 142

$900 (deferred tax asset balance is $1,200, but only $300 is expected to be realized).

Question 143

What percentage is used for determining realization of a deferred tax asset?

Answer 143

Fifty percent used.

Question 144

When is a valuation allowance created for a deferred tax asset?

Answer 144

When there is a 50% or less chance of the deferred tax asset being fully realized.

Question 145

How is the amount of a valuation allowance determined?

Answer 145

Enough to reduce deferred tax asset to amount that has a better than 50% chance of being realized.

Question 146

Describe the accounting effect when actual tax benefit is greater than expected in a later year.

Answer 146

Reduce income tax expense for the difference between benefit recognized in previous year and the actual benefit.

Question 147

What is the minimum probability of sustaining an uncertain tax position to reduce income tax expense for an uncertain tax position?

Answer 147

Greater than 50%.

Question 148

Describe the accounting effect when the probability of sustaining an uncertain tax position is equal to or greater than the minimum for reducing income tax expense.

Answer 148

Recognize a reduction in income tax expense for the largest amount for which the cumulative probability of realization exceeds 50%, and an additional liability for the unrecognized portion.

Question 149

Describe the accounting effect when actual tax benefit is less than expected in a later year.

Answer 149

Recognize income tax expense for the difference between benefit recognized in previous year and the actual benefit.

Question 150

Describe the account effect when the probability of sustaining an uncertain tax position is less than the minimum for reducing income tax expense.

Answer 150

Report a liability for the uncertain tax position in addition to the income tax liability.

Question 151

Define “uncertain tax position”.

Answer 151

A position taken on the Firm’s tax return that reduces income tax but which may be challenged by the Taxing Authorities.

Question 152

What is the main reason for choosing the carryforward only option?

Answer 152

An expectation of higher future tax rates.

Question 153

Refund of taxes paid in the past is a feature of which option for net operating losses?

Answer 153

Carryback-carryforward only.

Question 154

What period of years can a net operating loss (NOL) be carried forward or back?

Answer 154

Two years back, twenty years forward.

Question 155

List the net operating loss options a taxpayer has.

Answer 155

1. Carryback Carryforward Option; 2. Carryforward Only Option.

Question 156

What account is credited when a net operating loss is recognized?

Answer 156

Income tax benefit.

Question 157

Describe the general calculation of effect of net operating loss (NOL) on ending deferred tax asset balance for carryforward only option.

Answer 157

Increase by full NOL multiplied by the future enacted tax rate.

Question 158

Describe the general calculation of effect of net operating loss (NOL) on ending deferred tax asset balance for carryback-carryforward option.

Answer 158

Increase by portion of NOL remaining after being used in the carryback, multiplied by the future enacted tax rate.

Question 159

Define “net operating loss”.

Answer 159

Negative taxable income (strictly a tax term).

Question 160

What is the journal entry for recording a net operating loss carryback?

Answer 160

DR: Refund Receivable CR: Income Tax Benefit

Question 161

What is the journal entry for recording a net operating loss carryforward?

Answer 161

DR: Deferred Tax Asset CR: Income Tax Benefit

Question 162

Increase in deferred tax asset is a feature of which option for NOLs?

Answer 162

Both the Carryback Carryforward Option and the Carryforward Only Option.

Question 163

What is the effective length of the taxing period for the carryback-carryforward option?

Answer 163

Effective length of the taxing period is 23 years.

Question 164

Which years taxable income are absorbed by a net operating loss (NOL) carryback?

Answer 164

The taxable income two years before the year of the NOL is used first, then one year before the NOL.

Question 165

What is the ending balance of deferred tax asset for a net operating loss (NOL) carryforward?

Answer 165

Product of enacted future tax rate and NOL remaining to carryforward.

Question 166

What effect does income tax benefit have on income for financial reporting?

Answer 166

The effect of income tax benefit is an Increase.

Question 167

What tax rate is used in computing a refund from carryback of net operating losses?

Answer 167

Tax rate paid on taxable for the previous two years.

Question 168

How is a carryforward valued?

Answer 168

Product of enacted future tax rate and NOL remaining to carryforward.

Question 169

What effect does a change in tax status from taxable to nontaxable have on deferred tax accounts?

Answer 169

Close the accounts against income tax expense (for example, closing a deferred tax asset increases income tax expense).

Question 170

What should deferred tax accounts under international accounting standards be classified as?

Answer 170

The classification of this is all noncurrent.

Question 171

True or False: The total of all deferred tax assets and deferred tax liabilities are not required to be disclosed.

Answer 171

False. Total of all deferred tax assets and deferred tax liabilities are required to be disclosed.

Question 172

What is the required ending balance of a deferred tax asset when there are future deductible differences and an unused net operating loss (NOL) carryforward?

Answer 172

Product of future enacted tax rate and sum of future deductible differences plus unused NOL carryforward.

Question 173

List the required disclosures for income taxes.

Answer 173

1. Current and deferred portions of income tax expense; 2. Any investment tax credits; 3. Benefits of operating tax loss carryforwards; 4. Government grants to the extent they are used to reduce income tax; 5. Adjustments to deferred tax accounts as a result of a change in enacted tax rates or tax status of the firm.

Question 174

What effect does a change in tax status from nontaxable to taxable have on deferred tax accounts?

Answer 174

Apply interperiod tax allocation as usual; there are no beginning deferred tax balances to use.

Question 175

What effect do future taxable differences have on ending deferred tax asset for a firm with an unused net operating loss carryforward?

Answer 175

No effect; taxable differences yield deferred tax liabilities.

Question 176

What is the general expression for the change in deferred tax asset for a period for a net operating loss (NOL) carryforward that is not fully used up in the period?

Answer 176

End of period sum of future deductible differences plus unused NOL carryforward, multiplied by future enacted tax rate, less beginning deferred tax asset.