SS9 R31 Income Taxes

Question 1

TAXABLE INCOME

Answer 1

Income subject to tax based on the tax return

Question 2

TAXES PAYABLE

Answer 2

Tax liability on the B/S caused by TAXABLE INCOME

Also called CURRENT TAX EXPENSE

Don’t confuse with income tax expense

Question 3

INCOME TAX PAID

Answer 3

Actual cash flow for income taxes, including payments or refunds from other years

Question 4

TAX LOSS CARRYFORWARD

Answer 4

Current or past loss that can be used to reduce taxable income (and taxes payable) in the future

Can result in a deferred tax asset

Question 5

TAX BASE

Answer 5

Net amount of an asset or liability used for tax reporting purposes

Question 6

ACCOUNTING PROFIT

Answer 6

income before tax or earnings before tax

pretax financial income based on financial accounting standards

Question 7

INCOME TAX EXPENSE

Answer 7

income tax expense =
taxed payable + delta(DTL) - delta(DTA)

expense recognized on the I/S

Question 8

DEFERRED TAX LIABILITIES

Answer 8

B/S amounts that result from an excess of income tax expense over taxes payable that are expected to result in future cash outflows

Question 9

DEFERRED TAX ASSETS

Answer 9

balance sheet amounts that result from an excess of taxes payable over income tax expense that are expected to be recovered from future operations

can also result from tax loss carryforwards

Question 10

VALUATIONS ALLOWANCE

Answer 10

reduction of deferred tax assets based on likelihood assets will not be realized

Question 11

CARRYING VALUE

Answer 11

net balance sheet value of an asset or liability

Question 12

PERMANENT DIFFERENCE

Answer 12

difference between taxable income (tax return) and pretax pretax income (income statement) that will not reverse in the future

causes the firm’s effective tax rate to differ from the statutory tax rate

Question 13

TEMPORARY DIFFERENCE

Answer 13

difference between tax base and carrying value of asset/liablity that will result in either taxable amounts or deductible amounts in the future

a DTA or DTL is created as a result of a temporary difference

classified as TAXABLE TD or DEDUCTIBLE TD

Question 14

TAX BASE OF ASSETS

Answer 14

amount to be deducted (expensed) on tax return in the future as economic benefits of asset are realized

Question 15

TAX BASE OF LIABILITIES

Answer 15

carrying value of the liability minus any amounts that will be deductible on the tax return in the future

Question 16

STATUTORY TAX RATE

Answer 16

tax rate of the jurisdiction where the firm operates

Question 17

EFFECTIVE TAX RATE

Answer 17

effective tax rate =

income tax expense)/(pretax income

Question 18

VALUATION ALLOWANCE

Answer 18

contra account that reduces the net B/S value of a DTA (not DTL)

used in US GAAP when it is more likely that some or all of a DTA will not be realized

management can manipulate earnings by changing valuation allowance