Module 14 Flashcards
What is the formula to get from book income to tax income
Book income + Non-deductible expense - Non taxable income = taxable income
What are the two twpes of differences betwene book income and taxable income?
Temporary Differences and Permanent differences
What is a temporary difference?
items that will reverse themselves over time. (Differences between Depreciation methods)
What is a permanent difference?
An item on the income statement that will never reverse. (Interest received on Municipal bonds)
What is the deffinition of a deferred tax liability?
When taxable income will be higher than book income in the future
How do you calculate a deferred tax liability?
Take the future taxable amount * Future tax rate = deferred tax liability
What is the definition of a deferred tax asset?
It is a future deductible amount that will cause taxable income (in the future) to be lower than book income.
How do you calculate a deferred tax asset?
Future deductable amount * future tax rate = deferred tax asset?
What type of approach is required for recognizing and measuring deferred taxes?
Asset and liability approach
If an assets value is greater on the books that it is on the tax return, what is the result?
You deduct in the current period and it is taxable in a future period. It is a deferred tax liability
If the value of an asset on the books is less then its tax amount, what is the result?
You have a taxable amount in the current period, and a deductible amount in a future period. It is a deferred tax asset.
If a liability on the books is greater than the amount on the tax return, then what is the result?
You have a taxable amount in the current year, and a deductible amount in future years. It is a deferred tax asset
If you have a liability on the books that is less than the amount on the tax return, what is the result?
You have a deductible amount in the current period and a taxable amount in future priods. It is a deferred tax asset.
