M7 - Income Taxes: Part 2

Question 1

For interim financial reporting, a company’s income tax provision for the second quarter should be determined using the what?

Answer 1

The best, most current estimate of the annual effective tax rate should be used to determine the income tax provision for the second quarter. This rate is the effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.

Question 2

True or false: Interim period tax expense is the estimated annual effective tax rate applied to the year-to-date income before taxes minus the tax expense recognized in previous interim periods.

Answer 2

True

Question 3

Under US GAAP deferred tax liabilities and assets should be classified and reported as a (CURRENT OR NON-CURRENT?) amount on the balance sheet?

Answer 3

Non Current

This treatment aligns with IFRS.

All deferred tax liabilities and assets must be offset (netted) and presented as one amount (a net non-current asset or a net non-current liability), unless the deferred tax liabilities and assets are attributable to different tax-paying components of the entity or to different tax jurisdictions.

Question 4

True or false: The deferred income tax liability equals the future enacted tax rate (40%) times the future taxable amounts.

Answer 4

True

The deferred income tax liability balance depends on the total future taxable amounts, rather than the change in future taxable amounts, times the future enacted rate.

Question 5

A carryback of a loss results in a what?

Answer 5

Tax Refund Receivable

Question 6

A carryforward of a loss results in a what?

Answer 6

Deferred tax asset