F6/M6 Income Taxes: part 1 Flashcards
Permanent and Temporary Differences
Permanent differences = affect current / not
deferred
Temporary differences = Affect Current /
Deferred taxes required
Owe now (+) Owe Later =
- Both are liabilities on B/S
Income Tax Expense
Income Tax Expense
Current Tax (+/-) Change in Deferred Taxes
Permanent Differences
Only affect current year
- Life insurance proceeds of officer
- Tax exempt interest
- Life insurance premiums that the corp is
the beneficiary - Non deductible portion of meal expense
Temporary Differences
Deferred taxes required
Revenues/Gains Tax Income Later = Future tax liability - Installment sales (Cash basis) - % vs. Completed Contract (accrual) - Equity method (undistributed dividends)
Tax Income First = Prepaid Tax Benefit
- Prepaid rent, prepaid interest
- Prepaid = Unearned
Tax Deduct Later = Future Tax Benefit
- Bad debt expense
- Estimated Warranty expense
- Start up expenses
Tax Deduct First = Future Tax Liability
- Depreciation expense
- Amortization of franchise
Deferred Tax Liabilities (Credit balance)
Tax Deductible Now / FS Expense Later
- Depreciation
- Amortization of franchise
- Prepaid expenses
Tax Income Later / FS Income Now
- Installment Sales
- Contractor accounting
- Equity method
Deferred Tax Assets (Debit balance)
Tax Deductible Later / FS Expense Now
- Bad debt expense
- Est. Warranty expenses
- Start up expenses
Tax Income First / FS Income Later
- Prepaid rent (unearned)
- Rent = taxable when received
- Prepaid interest (unearned)
When multiple temporary differences, net the amount
True
Valuation allowance for amount of DTA that is more likely than not to be used (>50%)
NOT permitted under IFRS
Record DTA/DTL at amount AFTER tax
Not before tax
DTA has a Debit balance
DTL has a Credit balance
