20: A.2. Accounting for Income Taxes

Question 1

Classify these as Deferred Tax Assets or Deferred Tax Liabilities

1- Unrealized losses on trading securities and equity securities
2- Accelerated depreciation
3- Unrealized (holding) gains on securities
4- Estimated liabilities for loss contingencies

Answer 1

1- DTA - Here the securities fall in their price, so in our books we record a loss, but the tax says no, you still didn’t sell the securities at a loss on them, so that makes

2- DTL - here because the tax will depreciate the asset in its early years, so the tax will be less than your books

3- DTL - Here in your books, you record a gain because the securities went up, but the tax says, NO you still didn’t sell your securities

4- DTA - here you record a loss in your books, but the tax doesn’t use this loss because we still haven’t paid the loss yet it’s justan estimation

Question 2

Explain how Deferred Tax Assets and Liabilities happen in the books

Answer 2

We calculate financial books and the tax books, then compare them. If F.B > T.B, it’s a DTL because we paid less than what we have to pay, so it’s a liability on the company. If F.B < T.B it’s DTA because we paid more than what in the books, so it’s an asset for us and will be deductible for us in the future.