Income Taxes Flashcards
Deferred income tax expense or benefit is equal to the sum of net changes in deferred tax assets and deferred tax liabilities? TF
True
FAS 109 (Acctg for income taxes) is based on what acctg concept?
Asset/Liability Approach
How do permanent differences distort the effective tax rate?
Permanent differences subtract directly from NI. Tax is then levied on the reduced NI at its amount before the difference causing the effective tax rate to be greater than the statutory tax rate.
Are footnotes required if the effective tax rate the the statutory tax rate differ?
Yes
What are some common permanent differences, and what is their treatment in dealing with taxable income?
Tax exempt interest Fines and penalties Life insurance policies on key employees Dividends received deductions Depletion NON DEDUCTIBLE
Temporary differences are recognized in different amounts for books and tax in a given year. TF
True
What are the two broad types of temporary differences?
Deferred Tax Assets and Deferred tax liabilities
Deferred tax assets represent prepayments to the IRS. TF
True
Deferred tax liabilities represent prepayments to the IRS. TF
False. The represent amounts owed in future periods.
Best way to solve DTA DTL problems?
JE. Dr. Income tax expense (Total) dr. DTA or cr. DTL cr. Cash to IRS or cr. Income tax payable
Life insurance proceeds on death of an officer should be included when computing taxable income? TF
False, they should be subtracted from taxable income.
Income from tax exempt municipal bonds should be included in taxable income? TF
False, note “tax exempt”
Excess depreciation should be included in taxable income. TF
False
DTLs arise from
Future cash inflows that have yet to be taxed
DTAs arise from
Taxes paid on items not due yet
Formula for taxable income
Taxable income = Pre tax accounting income +/- originating temp diffs +/- permanent diffs
Items that are good for the fin statements create…DTA/DTL
DTLs
Items that are bad for the fin statements create…DTA/DTL?
DTAs
Expense Items: FS > TAX =
A DTL and is ADDED to pre tax income
Expense Items: FS
A DTA and is SUBTRACTED from pre tax income
Income Items: FS > TAX =
A DTA and is SUBTRACTED from pre tax income
Income Items: FS
A DTL and is ADDED to pre tax income
Things that are bad for the FS cause DTAs or DTLs in future periods?
DTAs
Things that are good for the FS cause DTAs or DTLs in future periods?
DTLs
The future tax rate should be used in computation of the DTA or DTL if…
those are going to be the rates in effect when the future tax consequences will be realized
The effective tax rate is the rate you actually pay after taxable income is adjusted. TF
True
Life insurance premiums are kept or taken away from NI to arrive at taxable income?
Kept
Equity income of an investee is taxable. TF
False
In computing a DTL, changes in depreciation are treated prospectively. TF
True, no temporary difference is generated from the PAST years. The temporary differences start from the date of change.
On the balance sheet non current DTAs and DTLs are show separately. TF
False, netted and shown as “deferred tax”
Current and non current deferred tax assets are NOT netted together for balance sheet disclosure. TF
True
For a DTA to be recognized what standard must be met?
More likely than not, 50% or greater
Value of the NOL carryforward =
NOL x Tax Rate
NOLs can be carried back ___ years and carried forward _____ years.
2, 20
Current and non-current tax assets and liabilities are disclosed seperately. TF
True
Permanent differences (need/do not need) to be disclosed.
do not need
Deferred taxes in dealing with percentage depletion = 0. TF
True
Under IFRS DTAs and DTLs can only be netted together if…
The are under the same taxing authority
Non Current DTA’s and Current DTL’s can be netted together. TF
False, Non current and current anythings cant be netted together, must be the same.
