Flashcards in Deferred Taxes Deck (27):
What is a temporary difference related to deferred taxes?
GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another
Example: Dividends from a subsidiary accounted for using the Equity Method - tax income but not book income
What is a deferred tax asset?
Deduction will reduce future income taxes expense.
What is a deferred tax liability?
Income will be taxable in a future period and will increase future tax expense
Which period's tax rate is used to calculate a deferred tax asset or liability?
The FUTURE enacted tax rate not the current one.
It is never discounted to present value.
What valuation allowance is used with respect to a deferred tax asset?
If it isprobable that not all of a Deferred Tax Asset (debit) will be realized then the Deferred Tax Asset account must be written down (credit) to reflect this
What effect do permanent differences have on deferred income taxes?
They have no tax impact.
When calculating the total differences between book and tax income subtract the permanent differences from the total before applying a future enacted tax rate
What is deferred income tax expense?
The sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities
GAAP Method for calculating is theAsset and Liability Approach
Note: IFRS uses the Liability approach only
How are deferred tax assets classified as current or non-current on the balance sheet?
Current Deferred Tax Assets and Liabilities will impact income tax expense within 12 months. All current amounts are netted and reported as a single amount on the Balance Sheet
Non-Current Deferred Tax Assets and Liabilities will impact income tax expense 12 months or more fromt he Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet
Objective of accounting for income taxes
To recognize amount of current and deferred taxes payable or refundable
Calculate income tax expense
Amount currently payable + tax effect of temporary differences
Treatment of permanent differences in deferred tax liability
Exclude permanent differences from deferred tax liability
What rate to use for deferred tax liability
Use current tax rate or enacted future tax rate if different
What is the deferred income tax expense or benefit
Net change during the year in an enterprises deferred tax liabilities or assets
Journal entry for increase in deferred tax asset and income tax payable
DR Income tax expense - current
CR Income tax payable
DR Deferred tax asset
CR Income tax expense - Deferred
Journal entry for deferred tax asset valuation allowance
DR Income tax expense - deferred
CR Allowance to reduce DTA expense - deferred
Calculate dividend received deduction permanent difference
DRD x (Accounting dividend revenue - tax dividend revenue)
Calculate dividend received deduction temporary difference
(1-DRD) x (Accounting dividend revenue - tax dividend revenue)
Journal entry for loss carry back
DR Tax refund receivable
CR Benefit due to loss carryback
Journal entry for loss carryforward
CR benefit due to loss carryforward
Where is loss carryforward or loss carryback shown on income statement?
After loss before income taxes
What does loss carryforward or loss carryback reduce
Reduces current income tax expense
When is a valuation allowance required
Inconsistent company performance and lack of positive evidence since a DTA may not be used
Classification of deferred tax liability from depreciation
Two classifications of deferred tax assets and liabilities and when to use each classification
Current and noncurrent
Based on related asset or liability
If not related to an asset or liability then based on timing of reversal or date of utilization
How is a receivable for taxes paid refundable through a carryback treated
Not a deferred tax asset and does not offset a deferred tax liability
How is income tax expense allocated on the income statement
Allocated between continuing operations, extraordinary items, etc
Computed by determining income tax on overall income and comparing to tax on continuing operations. If more than 1 special items exists, proportionally allocate tax in special items