Income Tax

Question 1

What concept is the justification for the method of determining periodic deferred tax expense based on?

Answer 1

Recognition of assets and liabilities

Question 2

What is reported whenever income is recognized in the FS before it is reported as taxable income?

Answer 2

Deferred tax liability

Question 3

Where would the tax benefit of a loss carried forward (that reduces current taxes pyable) be included?

Answer 3

In income from continuing operations

Question 4

How do you calculate double declining depreciation?

Answer 4

Cost x (year/useful life) x percent double declining

Question 5

Are differences in uncollectible accounts expense permanent or temporary?

Answer 5

Temporary because bad debts must be written off

Question 6

Are premium expenses on life insurance permanent or temporary?

Answer 6

Permanent

Question 7

Under IFRS, how are all DTAs and DTLs classified?

Answer 7

As noncurrent on the B/S

Question 8

What arises when an item is included in the calculation of NI in one year and in taxable income in a different year?

Answer 8

Temporary difference

Question 9

How do you find the effective tax rate?

Answer 9

Effective tax rate = Income tax expense / Pretax income

Question 10

Should you disclose the types and amounts of existing permanent differences in the FS related to deferred taxes?

Answer 10

No because there are no deferred taxes for permanent differences

Question 11

Intraperiod tax allocation

Answer 11

Involves apportioning the total tax provision for financial accounting purposes in a period b/w the income and loss from :

• Income from continuing operations
• Discontinued operations
• Accounting principle change
• OCI (PUFER)
• Components of S/H equity

Question 12

Are penalties paid for legal violations permanent or temporary differences?

Answer 12

Permanent

Question 13

Change in valuation allowance

Answer 13

A change in circumstances that causes a change in judgment about the ability to realize the related deferred tax asset in future years should be recognized in income from continuing ops. in period of change

Question 14

Which approach is used to determine income tax expense under GAAP?

Answer 14

Asset and liability approach (B/S approach)

Question 15

What are the 2 rules regarding netting deferred tax assets/liabilities?

Answer 15

1. All Current deferred tax liabilities and assets must be offset and presented as one amount
2. All noncurrent deferred tax liabilities and assets of a particular tax jurisdiction must be offset and presented as one amount

Question 16

Current income tax expense/benefit

Answer 16

Equal to the income taxes payable or refundable for the current year, as determined on the corporate tax return for the current year (owe now)

Question 17

Deferred income tax expense/benefit

Answer 17

Equal to the change in deferred tax liability or asset account on the B/S from the beginning of the current year to the end of the current year (balance sheet approach)

Question 18

Total income tax expense/benefit

Answer 18

Current income tax payable or refundable as determined on the corporate tax return (current)[B/S] +/- Change in deferred income tax asset or liability from the beginning to the end of the reporting period (later)[B/S] = Total income tax expense/benefit [I/S]

Question 19

When is the enacted tax rate used?

Answer 19

For deferred taxes (temporary differences) in periods the taxable items are expected to be paid or realized (use the enacted tax rates for that period, not necessarily period the item is incurred)

Question 20

Dividend received deduction (exclusion) rules

Answer 20

Ownership 0-19% => 70% exclusion
Ownership 20-80% => 80% exclusion
Ownership over 80% => 100% exclusion

Question 21

Are DRDs permanent or temporary differences?

Answer 21

Permanent

Question 22

How would an increase in prepaid insurance affect deferred income tax?

Answer 22

Cause an increase in deferred income tax liability

Question 23

How would an increase in rent receivable affect deferred income tax?

Answer 23

Cause an increase in deferred income tax liability