Income tax

Question 1

IFRS requires

Answer 1

pretax financial income and
Income tax expense

Question 2

Tax code requires

Answer 2

Taxable income
and Income tax payable.

Question 3

Amount reported as A will often differ from amount of B to tax authority

Answer 3

A: Tax expense (use accrual accounting)
B: Taxes payables (uses modified cash accountong)

Question 4

How is depreciation treated under book vs tax reporting

Answer 4

Straight line under financial book reporting, accelerated depreciation for tax purposes

Question 5

What is a tempory difference in tax basis?

Answer 5

Difference between tax basis of an asset or liability and its GAAP basis that will reerse in future years.

Question 6

What is deferred tax liability ?

Answer 6

Current year : book income > tax income
Future tax consequence : DTL (future taxable amounts

Question 7

What is a deferred tax asset ?

Answer 7

Current year : book income < tax income
future tax consequence : deductible amounts -> increase in DTA.

Question 8

Permanent difference in tax?

Answer 8

difference between tax basis of an asset or
liability and its reported (carrying
or book) amount in financial
statements that will NEVER
reverse in future years.

Question 9

How to compute DTL?

Answer 9

1. Determine what is to be collected in the future.
2. Determine the tax rate
3. sum Amount * taxe rate

Question 10

Total income tax expense =

Answer 10

1. Current tax expense (amount of income taxes payable for period)
   +
2. Deffered tax expense (annual increase in DTL)
   (- Decrease in deferred tax liability)

Question 11

Journal entry to record income taxes

Answer 11

debit:
- income tax expense
credit:
- income tax payable (Current tax liability)

switch of between credit and debit: depends on ?
- deferred tax liability (DTL)

Question 12

An landlord collects rent payments in advanced. Rent payments are taxable in the period when they are collected.

Answer 12

temporary, deductible

Question 13

Expenses are incurred in obtaining tax-exempt income

Answer 13

permanent, neither deductible, taxable

Question 14

Costs of guarantees and warranties are estimated and accrued for financial reporting purposes.

Answer 14

temporary, deductible

Question 15

Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes

Answer 15

temporary, taxable

Question 16

Interest is received on an investment in tax-exempt governmental obligations.

Answer 16

permanent, neither

Question 17

For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets’ lives are shorter for tax purposes.

Answer 17

temporary, taxable

Question 18

Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax-deductible in the period(s) when the related liabilities are settled.

Answer 18

temporary, deductible