QUIZ 4 Flashcards
Tax rate changes, ETR reconciliations, & NOLs and Tax Credits
DTAs and DTLs are computed using the law and enacted rates in effect
as of the balance sheet date
They are classified as non-current assets and liabilities on b/s
If there is an (enacted) change during the accounting period
DTAs and DTLs must be adjusted for changes. The Enactment date is the date the bill becomes a law – i.e., President signs the bill
BOY = tax - book basis = + then DTA, If - then DTL
EOY = tax- book basis
CY basis balance = EOY-BOY
JE: DTL
debit DTE
credit DTL
JE: DTA
debit DTA
credit DTE
If reversed, then reverse JE
ETR reconciliation
reconciles the statutory tax rate to the effective tax rate
ETR =
= TOTAL TAX EXP/PRE TAX BOOK INCOME
ETR is only affected by permanent differences and tax credits (these are already in tax dollars) but NOT temporary differences
Its also impacted by state and local income taxes and change in valuation allowance
Permanent diferences
DRD - subtract because deductible
Penalties & fines - not deductible so we add
Municipal bond interest
Life insurance premiums
Interest income or tax exempt securities
Meals and entertainment
Tax credits
an unused credit can be
carried back - resulting in income tax receivable
carried forward - resulting in a DTA
XYZ Inc is eligible for a $15,000 tax credit. They use $8,000 in the current year, carryback $3,000 and remaining $4,000 credit is carried forward.
CY tax credit
Dr. Income tax receivable 8000
Cr. CTE (8000)
Carry back
Dr. Income tax receivable 3,000
Cr. CTE (3,000)
Carry Forward
Dr. DTA 4,000
Cr. DTE (4,000)
NOLS
NOLS (2017 or earlier):
- carry back 2 years and carry forward 20 years
- 100% offset to taxable income each year
- Carryback result in tax refund (income tax receivable)
- Carryforward result in DTA
(2018 and later):
No carry back, indefinite carry forward
- offset 80% of taxable income each yr
- carry forwards still result in DTAs
