Module 27.3 & 27.4: Deferred Tax Examples and Change in Tax Rates

Question 1

When income tax expense on the income statement is higher than taxes payable calculated by tax, what is created? a DTL or DTA?

Answer 1

a DTL. the DTL is calculated by the difference between the carrying value and tax base multiplied by the tax rate.

Question 2

When income tax and taxes payable are equal, what occurs to the DTA or DTL?

Answer 2

nothing, if they are the same there is no change.

Question 3

When income tax expense on the income statement is less than taxes payable, what is created a DTL or DTA?

Answer 3

a DTA is created, but it will also eliminate any previously generated DTL’s first.

Question 4

What occurs to DTL and DTA when the tax rate is increased?

Answer 4

both deferred tax liabilities and assets will increase dta and dtl and vice versa.

Question 5

what is the formula to determine the impact of an increased tax rate on income tax expense?

Answer 5

income tax expense = taxes payable + change in deferred tax liabilities - change in deferred tax assets.