LM 8: Analysis of Income Taxes Flashcards
What is accounting profit?
pretax income reported on income statement
What is taxable income?
amount of income subject to taxes, deductions, and etc.
What is income tax payable?
a liability reported for financial accounting purposes that indicates the amount that an organization expects to pay in income taxes within 12 months.
What is tax expense?
the total amount of taxes owed by an individual, corporation, or other entity to a taxing authority.
What is deferred tax assets?
an item on the balance sheet that results from the overpayment or the advance payment of taxes. taxes paid but no recognized on the income statement
What is a valuation allowance?
a reserve that is used to offset the amount of a deferred tax asset incase company doesn’t recover deferred tax asset
What is deferred tax liabilities?
a listing on a company’s balance sheet that records taxes that are owed but are not due to be paid until a future date.
What is income tax paid?
total amount of income tax paid
What is tax base?
total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority.
percentage of value an asset can be taxed (buying equipment and it depreciated 20% for tax reporting.)
What is carrying amount?
cost of asset less any depreciation
How often must deferred tax assets and liabilities be recalculated and by comparing what two items?
recalculated every year by comparing the tax bases and carrying amounts
When should a deferred tax asset or liability be established?
if future economic benefits are expected (company is expected to stay in business)
What is tax base of an asset?
amount deductible for tax purposes in future
What happens to deferred tax assets and liabilities when income rates change?
if income rate increase so will deferred tax rate and liabilities
if income rate decrease so will deferred tax assets and liabilities
What is deferred tax liability equation?
(carrying value - tax base) * tax rate
Whats the equation for reported effective tax rate?
reported effective tax rate = income tax expense / pretax accounting profit
If an asset has a greater carrying amount than tax base is it a deferred tax liability or asset?
carrying amount > tax base
deferred tax liability
If an asset has a greater tax base than carrying amount is it a deferred tax liability or asset?
carrying amount < tax base
deferred tax asset
If a liability has a greater carrying amount than tax base is it a deferred tax liability or asset?
carrying amount > tax
deferred tax asset
If a liability has a greater tax base than carrying amount is it a deferred tax liability or asset?
carrying amount < tax
deferred tax liability
What 2 disclosures can be found in the supplementary notes to the financial statements about taxes? JS
- jurisdictions that are charging the taxes
- some details behind the tax calculation
What is the statutory tax rate?
corporate income tax rate imposed by law on taxable income
What is the effective tax rate?
percentage of income taxes actually paid after taking into account tax breaks
What is the cash tax rate?
actual amount of cash taxes paid
What are the 4 causes of a difference in statutory tax rate and effective tax rate? TWAE
- Tax credits
- Withholding taxes on dividends
- Adjustments to previous year’s financial reports
- Expenses not being deductible for tax purposes
