Quiz 3 - CTE and DTE

Question 1

CTE

Answer 1

amount of taxes payable or refundable for the current year

Question 2

DTE

Answer 2

DTA or DTL

Question 3

Total Tax Expense =

Answer 3

= CTE + DTE

Question 4

Journal Entries

Answer 4

Debit CTE
Credit Current Tax Payable

Temp Taxable Difference

Debit DTE
Credit DTL

Reverse accounts when we “pay” the DTL and it becomes unfavorable creating a benefit

Temp Deductible Difference
Debit DTA
Credit DTE

reversal effects is the tax benefit

Question 5

ETR

Answer 5

= total tax expense / pre tax book income

Question 6

Measuring Temp Differences

Answer 6

Book basis = financial statement amt
Tax Basis =
Fix Asset (PPE) = use tax basis
Allowance for Doubtful Accounts = ALWAYS 0
Reserve accounts = ALWAYS 0
Accrued Expenses = Generally 0 unless amounts allowable are a deduction.

Accrued vacation or bonuses - within 2.5 months after year end
Recurring item - payments made within 8.5 months of year end
Workers compensation - Always 0

Question 7

Assets

Answer 7

Book > Tax = DTL Ex: Fixed assets
If Tax > Book = DTA Ex: Organizational cost

Question 8

Liabilities

Answer 8

Tax > Book = DTL Ex: installment sales
Book> Tax = DTA Ex: reserves, allowance for doubtful accounts

Question 9

Three Step process

Answer 9

1) Begin Tax basis - Beg Book basis = Begin difference

2) End Tax basis - End Book basis = End difference

3) End difference - Begins difference

Always maintain signs and debit or (credit) balance of accounts

Question 10

The deferred tax benefit occurs when there is a

Answer 10

decrease in DTL or increase in DTA

DTA’s and DTL’s are computed using the law and enacted rates as of the balance sheet date. If there’s an enacted change in rate, DTA/DTL must be adjusted. Enactment date is the date the bill becomes a law and president signs the bill