Lesson 12

Question 1

Companies should disclose which 2 things when it comes to deferred taxes?

Answer 1

1. Any change during the year in the total valuation allowance
2. The types of temporary differences or carry forwards that give rise to significant portions of deferred tax liabilities and assets

Question 2

Examinations of deferred portion of income tax expense provides what?

Answer 2

Information as to whether taxes payable are likely to be higher or lower in the future.

Question 3

What is the formula to compute income tax expense (benefit)?

Answer 3

Income Taxes Payable +/- Change in Deferred Income Taxes = Total Income Tax Expense (Benefit)

Question 4

What is another name for asset-liability method?

Answer 4

Liability approach

Question 5

What is the purpose of the liability approach?

Answer 5

It is to recognize the amount of taxes payable or refundable for the current year.

It is also to recognize the DTA/DTL for the future tax consequences of events that have been recognized in the financial statements or tax returns.

Question 6

Diagram for implementing the Liability Approach

Answer 6

Question 7

What is carryforwards?

Answer 7

Deductions or credits that cannot be utilized on the tax return during a year and that may be carried forward to reduce taxable income/payable in a future year.

Question 8

Howe Corporation has income before income taxes of $1,064,000 in 2020. The current provision for income taxes is $210,000 and the provision for deferred income taxes is $165,000. What is Howe’s net income for 2020?

Answer 8

$689,000

$1,064,000 - $210,000 - $165000 = $689,000

Question 9

What is the most consistent method for accounting for income taxes that the FASB believes in?

Answer 9

asset-liability method