Income Tax Flashcards
what is intraperiod tax allocation?
intraperiod involves IDA PUFI:
- Income from continuing operations
- Discontinued operations
- Accounting principle changes (retrospective)
- OCI items:
- Pension funded status change
- Unrealized gain/loss from AFS debt securities and hedges
- Foreign translation adjustments
- Instrument specific credit risks
what is interperiod tax allocation?
interperiod involves permanent and temporary differences
what is the objective of accounting income taxes (interperiod tax allocation)?
To recognize the amount of current and future tax related events occurred in FS. Both permanent and temporary differences are used to determine current year taxes (taxes payable/refundable) and future year taxes (deferred tax assets/liabilities)
what is the approach GAAP used to determine income tax expense?
Balance sheet approach or asset & liability approach
How to calculate effective tax rate?
effective tax rate = income tax expense/pretax income
what creates deferred tax assets/liabilities?
deferred tax assets occurs when a temporary results in more tax paid now and less tax owes in the future. DTL will be the opposite.
what is valuation allowances?
Valuation allowances are only applicable to deferred tax assets. They are needed when it’s more likely than not part or all of deferred tax assets will not be realized. When there is a potential change in realization of DTA, it should be recognized in income from continuing operations in the period of change.
when is tax benefit recognized?
It is recognized when it has cumulative probability of 50% or more
what tax rate will DTA/DTL be used?
DTA/DTL will use enacted tax rate in the years they are reversed.
How to calculate income tax expense on an interim FS?
Multiply year to date income before income tax by effective annual rate and then subtract the income tax expense recorded in prior years
What does the deferred income tax expense/benefit equal?
deferred income tax expense/benefit equals to sum of net change in DTA and DTL
How are DTA/DTL reported on BS?
DTA/DTL is reported as a net non-current DTA/DTL
What happened when an entity claims a carryback?
A carryback results in a claim for refunds of past taxes, which is shown on the BS as a tax refund receivable. It’s an item separate from deferred taxes.
What happened when an entity claims a carryforward?
results in tax benefits, which equals the carryforward times the appropriate tax rate. Carryforward to 2021 is limited to 80% of NOL
what needs to disclose in a company’s FS?
- Types and amounts of temporary differences and nature, types and amounts of NOL and tax credit carryforward.
- Permanent differences do not need to be disclosed.
