Tax Accrual Entry

Question 1

What tax rate should be used when computing the change in the deferred tax accounts?

Answer 1

Enacted future tax rates (which could be the same as the current tax rate if rates have not been changed).

Question 2

How do permanent differences affect the tax accrual entry?

Answer 2

Taxable income excludes them; this exclusion is reflected in income tax expense - a plug figure

Question 3

List the formula for computing the effect of a permanent difference on the effective tax rate

Answer 3

Product of permanent difference and stated rate, divided by pretax accounting income

Question 4

How is income tax expense for a period computed?

Answer 4

It is a derived amount or “plug” figure, the net change caused by the changes in deferred tax accounts and the income tax liability.

Question 5

What book vs. tax differences does the computation of income tax liability consider?

Answer 5

It considers current period temporary and permanent differences.

Question 6

How is current income tax expense computed?

Answer 6

Taxable Income multiplied by current enacted rate