ACCT 3021 Lecture : New Chp 19 Class Notes

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azuremammoth471

15 Mar 2019

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There are different rules for financial accounting and tax accounting. This could lead to a difference between income tax expense on the financial statements and income taxes payable to the irs. Pretax financial income is the same as income before taxes and is used in financial reporting. Taxable income indicates the amount used to compute income taxes payable and is used for tax purposes. Differences between these numbers occur because companies use full accrual accounting for financial reporting and a modified cash basis for tax purposes. Differences are temporary differences difference b/t the tax basis of an asset/liability and its reported (cv or bv) amount in the financial statements. Results in either: taxable amounts increase taxable income in future years, deductible amounts decrease taxable income in future years, see ill. 19-22 for examples of temporary differences. Permanent difference nondeductible expenses or nontaxable revenues that are recognized for financial statement purposes but are never part of taxable income.

Related Questions

Johnny Bravo Company began operations in 2015 and has providedthe following information.
1. Pretax financial income for 2015 is $100,000.
2. The tax rate enacted for 2015 and future years is 40%.
3. Differences between the 2015 income statement and tax return arelisted below.
1. Warrantyexpense accrued for financial reporting purposes amounts to $5,000.Warranty deductions per the tax return amount to $2,000.
2. Gross profit onconstruction contracts using the percentage-of-completion methodfor book purposes amounts to $92,000. Gross profit on constructioncontracts for tax purposes amounts to $62,000.
3. Depreciation ofproperty, plant, and equipment for financial reporting purposesamounts to $60,000.
4. Depreciation ofthese assets amounts to $80,000 for the tax return.
5. A $3,500 fine paid forviolation of pollution laws was deducted in computing pretaxfinancial income.
6. Interest revenue earnedon an investment in tax-exempt municipal bonds amounts to$1,400.
4. Taxable income is expected for the next few years.

*Prepare the journal entry to record income tax expense, deferredtaxes, and income taxes payable for 2015. (1-6 above)
*Draft the income tax expense section of the income statement,beginning with

greenshark773

Norman, Inc. appropriately uses the asset-liability method to record deferred income taxes. Norman reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year.

In addition, Norman received rent revenues in advance this year. These revenues are included in this year's taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability.

Initial Post
How would Norman account for the temporary differences?

ivorygrasshopper924

2. (TCO B) The Accent Corporation shows thefollowinginformation.
On January 1, 2012, Accent purchased a donut machine for$900,000.
A) Pretax financial income is $2,000,000 in 2012 and $2,500,000 in2013.
B) Taxable income is expected in future years with an expected taxrate of 40%.
C) The company recognized an extraordinary gain of $250,000 in 2013(which is fully taxable).
D) Tax-exempt municipal bonds yielded interest of $50,000 in2013.
E) Straight-line basis for 8 years for financial reporting (SeeAppendix 11A.)
F) Half-year convention basis depreciation for 5 yearsfor tax purposes.
Required:
1) Computetaxable income and income taxes payable for 2013.
2) Prepare the journalentries for income tax expense, income taxes payable, and deferredtaxes for 2013.
3) Prepare the deferredincome taxes presentation for December 31, 2013 balance sheet.

yellowturtle37

ACCT 3021 Lecture : New Chp 19 Class Notes

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