Income Taxes

Question 1

What are typical transactions that generate a deferred tax asset?

Answer 1

Increase current year taxable income
1. Cash collected in advance (sales collected in advance)
2. Bad debt expense
3. Accrual of warranty expense
4. Organizational and start up costs.

Question 2

What are typical transactions that generate a deferred tax liability?

Answer 2

Reduces current year taxable income.
1. Installment sales
2. Equity method undistributed dividends (earnings)
1. Tax depreciation greater than book value
2. Expenses paid in advance (prepay of insurance)

Question 3

What are typical transactions that generate an permanent difference?

Answer 3

1. Interest received from tax exempt municipal obligations.
2. Insurance proceeds and premiums collected and paid for key management where the beneficiary is the company.

Question 4

How is the income tax expense CURRENT calculated and what is the journal entry?

Answer 4

Multiply the enacted tax rate * Taxable income

Dr. Income tax expense current XXXX
Cr. Income tax payable XXXX

Question 5

What is the maximum income tax benefit of a NOL carry forward for years 2021 and beyond?

Answer 5

2021 and beyond, is limited to 80% of taxable income.