Module 1

Question 1

Tax Reporting Requirements

Answer 1

Responsible for reporting current tax position
- Calculated in accordance with statutory laws
- Reported on tax forms

Question 2

What are the goals of tax reporting?

Answer 2

1. To collect taxes earlier rather than later
2. To prevent manipulation and to reduce auditing costs by disallowing accounting methods requiring subjective judgement in their implementation
3. To encourage or discourage certain economic activities with a view to achieving a social outcome

Question 3

Financial Reporting Requirements

Answer 3

Responsible for reporting the total tax position
- Determined in accordance with GAAP
- Reported on 10Q and 10K
- This is an ESTIMATE

Question 4

What are the goals of financial reporting?

Answer 4

1. To ensure that net income reflects the net accomplisments of hte business via the application of the matching concept
2. To balance the conflicting demands of the judgement required to apply the matching concept against the possiblity of earnings management and difficulty auditing subjective estimates
3. To disclose the “truth” without regard to social policy (neutral)

Question 5

Current Tax Expense

Answer 5

The taxes payable or refundable on the tax return in the current year (tax bill plus a few complications)

Question 6

Deferred Tax Expense

Answer 6

the future tax effects attributable to current economic transactions and performance (net temporary differences originating and reversing)

Question 7

Permanent Book-Tax Difference

Answer 7

• BTDs that do not reverse. These differences affect either book income or taxable income but never both.
• No future tax implications

Question 8

Temporary Book-Tax Difference

Answer 8

• BTDs that result in the same total amount of income/expense for book and tax purposes over time BUT the amounts occur in different reporting periods.
• affect the deferred tax provision because they affect multiple reporting periods (originate in one year and reverse in future years)

Question 9

Taxable Temporary Difference

Answer 9

If the reversal of a difference will make FUTURE taxable income higher than FUTURE book income

Question 10

Deductible Temporary Difference

Answer 10

If the reversal of a difference will make FUTURE taxable income less than FUTURE book income

Question 11

How do taxable temporary differences occur?

Answer 11

Book revenues precede taxable revenues (Ex: installment sales)
Book expenses follow tax deductions (EX: depreciation)

Question 12

What do taxable temporary differences create?

Answer 12

Deferred tax liabilities

Question 13

How do deductible temporary differences occur?

Answer 13

Book revenues follow taxable revenues
Book expenses precede tax deductions (ex: warranty expense, bad debt expense, excess capital losses)

Question 14

What do deductible temporary differences create?

Answer 14

Deferred tax assets