ACC 377 Lecture Notes - Lecture 1: Deferred Tax, Financial Statement, Income Statement

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indigolion532

18 May 2018

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is comprised of both the current and deferred tax consequences of events and transactions already

recognized

a) current

b) deferred

Income tax expense includes (a) the income tax that is payable ________ and (b) the change in the

_______ tax liability (or asset)

Temporary Differences

Between the reported amount of an asset or liability in the financial statements and its tax basis are

primarily caused by revenues, expenses, gains, and loses being included in taxable income in a year

earlier or later that the year in which they are recognized for financial reporting purposes

Liabilties

Some temporary differences create deferred tax _____ because they result in tax amounts in some

future years when the related asset are recovered or the related liabilities are settled

Assets

Some temporary difference created deferred tax ____ because they result in deductible amounts in

some future years when they related assets are recovered or the related liabilities are settled

Financial Reporting

Tax Purposes

Estimated Warranty expense is recognized for _____. The warranty cost is then deducted for _____

when paid.

Decrease

Future deductible amount mean that taxable income will be ______ relative to pretax accounting

income in one or more future year.

deductible

2 examples of future _____ amounts are (a) estimated expenses that are recognized on income

statement when incurred, but deducted on tax returns in later years when actually paid and (b)

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Related Questions

Information for Entity A for the year ended December 31, 2018 ($ in millions):

Income from continuing operations before tax	$160
Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense included in operating income	12
Depreciation deducted on tax return in excess of depreciation expense	32
Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense	8
Interest received on municipal bonds	3
Balance in deferred tax asset account, January 1, 2018	1
Balance in deferred tax liability account, January 1, 2018	2
The applicable enacted tax rate for all periods is 40%.

Show work.

A. Prepare the appropriate journal entry to record income taxes.

B. What is Entity A's net income?

C. Sometimes a temporary difference will produce future deductible amounts. Explain what is meant by future deductible amounts. Describe at least one situation that has this effect, for example, one example is when rent revenue is collected in advance from tenants (deferred rent revenue for financial accounting purposes) but will be recognized as the tenants occupy the property. You can think of others. How are future deductible amounts recognized in the financial statements? As between deferred tax assets and deferred tax liabilities, which would management prefer and why?

fuchsiaclam765

Four independent situations are described below. Each involvesfuture deductible amounts and/or future taxable amounts produced bytemporary differences

Situationnumbers in thousands

	1		2		3		4
Taxable income	$	153	$	351	$	365		$464
Future deductibleamounts		32				37		37
Future taxableamounts				32		32		64
Balance(s) atbeginning of the year:
Deferred tax asset		5.4				26		10.8
Deferred tax liability				5.4		5.4

The enacted tax rate is40%.

Required:

For each situation, determine the following: (Enter youranswers in thousands rounded to one decimal place (i.e. 1,200should be entered as 1.2).)

Year 1 Year 2 Year 3 Year 4

Income tax payble

Deferred tax assets- Balance

Deferred tax assets- Changes

Deferred tax Liabilitiess- Balance

Deferred tac Liabilities- Changes

Income tax Expense

goldsnake301

Four independent situations are described below. Each involvesfuture deductible amounts and/or future taxable amounts produced bytemporary differences:

	($ in thousands)
	Situation

	1		2		3		4
Taxable income	$	145	$	335	$	345		$440
Future deductibleamounts		30				35		35
Future taxableamounts				30		30		60
Balance(s) atbeginning of the year:
Deferred tax asset		5				24		10
Deferred tax liability				5		5