Flashcards in Deferred Income Taxes Deck (12):
temporary tax differences
affects taxable income in one period and NI in another
e.g. installment sales method
installment sales method
sale is reported on I/S when earnings process is complete, but, unlike with revenue, profit is deferred until cash is received.
permanent tax differences
reported on either tax return or I/S but not both
1. receipt of cash dividends from one corp. to another
2. paying federal income taxes
3. collecting life insurance
deferred income tax liability (DTL)
less tax now, more tax later.
e.g. recognition of revenue using installment sales method.
deferred tax asset (DTA)
more tax now, less tax later
e.g. rent revenue collected in advance
Income Tax Expense- Current formula
- Gain to be taxed later
- Int. rev. from municipal bonds
+ Expenses to be incurred (deducted) later
Handling gain to be taxed later (Inc. Tax Exp. - Current)
1. If 25% of the cash has been collected, then it is assumed that 25% of the gain (or amount of gain * 25%) is taxable.
2. NI - 75% of gain left collect = Taxable income * Enacted tax rate for current period = Inc. tax exp.- current
total income tax expense
IT exp- current + IT exp. deferred.
income tax expense- deferred
1. DTL - DTA
2. It is also the amount to adjust the deferred from beginning to ending balance.
Are DTLs and DTAs usu. current or noncurrent?
They are noncurrent.
If an amount of money can't be deducted...
add it to taxable income.