Income Tax II Exam 1

What is a permanent book/tax difference?

A difference that never reverses

What Is a temporary book/tax difference?

A difference that reverses in a future year

Which differences create deferred taxes?

Temporary differences

Do permanent differences create deferred taxes?

No

What does a favorable difference do to taxable income?

Decreases taxable income

What does an unfavorable difference do to taxable income?

Increases taxable income

Federal income tax expense is permanent or temporary?

Permanent

Federal income tax expense is favorable or unfavorable?

Unfavorable

Municipal bond interest is taxable?

No

Municipal bond interest is what type of difference?

Permanent favorable

Life insurance proceeds create what type of difference?

Permanet favorable

Nondeductible life insurance premiums create what type?

Permanent unfavorable

Fines and penalties are what type?

Permanent unfavorable

Depreciation differences are usually what type?

Temporary

Bad debt expense differences are usually what type?

Temporary

UNICAP differences are usually what type?

Temporary

Property disposition differences are usually what type?

Temporary

Do salaries usually create a book tax difference"?

No

Do utilities usually create a book tax difference?

No

Do supplies usually create a book tax difference?

No

What limits the caproate charitable contribution deduction?

10% of modified taxable income

Capital losses may offset what?

Capital gains only

Corporate capital losses carry back how long?

3 years

Corporate capital losses carry forward how long?

5 years

What is an NOL?

A net operating loss

NOLs generally carry forward under current law?

Yes

What does DRD stand for?

Dividends Received Deduction

DRD percentage is based on what?

Ownership percentage

When can the DRD limitation apply?

When the full DRD would create or increase a loss

Corporate income tax equals what?

Taxable income x tax rate

Future deductible amount creates what?

Deferred tax asset

Future taxable amount creates what?

Deferred tax liability

Temporary differences usually do what?

Reverse

Current tax expense is based on what?

Current taxable income

Know the journal entry for DTL?

Debit income tax expense; credit deferred tax liability

Life insurance proceeds create what type of difference?

Permanent favorable.

Nondeductible life insurance premiums create what type?

Permanent unfavorable.

Fines and penalties are what type?

Permanent unfavorable.

Depreciation differences are usually what type?

Temporary

Bad debt expense differences are usually what type?

Temporary

UNICAP differences are usually what type?

Temporary

Property disposition differences are usually what type?

Temporary

Do salaries usually create a book/tax difference?

No

Do utilities usually create a book/tax difference?

No

Do supplies usually create a book/tax difference?

No

What limits the corporate charitable contribution deduction?

10% of modified taxable income.

Capital losses may offset what?

Capital gains only.

Corporate capital losses carry back how long?

3 years

Corporate capital losses carry forward how long?

5 years

What is an NOL?

A net operating loss.

NOLs generally carry forward under current law?

Yes

What does DRD stand for?

Dividends Received Deduction.

DRD percentage is based on what?

Ownership percentage.

When can the DRD income limitation apply?

When the full DRD would create or increase a loss (subject to rules).

Corporate income tax equals what?

Taxable income × tax rate.

Future deductible amount creates what?

Deferred Tax Asset.

Future taxable amount creates what?

Deferred Tax Liability.

Temporary differences eventually do what?

Reverse

Current tax expense is based on what?

Current taxable income.

Know journal entry for DTL?

Debit Income Tax Expense; Credit Deferred Tax Liability.

Life insurance proceeds create what type of difference?

Permanent favorable.

Nondeductible life insurance premiums create what type?

Permanent unfavorable.

Fines and penalties are what type?

Permanent unfavorable.

Depreciation differences are usually what type?

Temporary

Bad debt expense differences are usually what type?

Temporary

UNICAP differences are usually what type?

Temporary

Property disposition differences are usually what type?

Temporary

Do salaries usually create a book/tax difference?

No

Do utilities usually create a book/tax difference?

No

Do supplies usually create a book/tax difference?

No

What limits the corporate charitable contribution deduction?

10% of modified taxable income.

Capital losses may offset what?

Capital gains only

Corporate capital losses carry back how long?

3 years

Corporate capital losses carry forward how long?

5 years

What is an NOL?

A net operating loss.

NOLs generally carry forward under current law?

Yes

What does DRD stand for?

Dividends Received Deduction.

DRD percentage is based on what?

Ownership percentage.

When can the DRD income limitation apply?

When the full DRD would create or increase a loss (subject to rules).

Corporate income tax equals what?

Taxable income × tax rate.

Future deductible amount creates what?

Deferred Tax Asset.

Future taxable amount creates what?

Deferred Tax Liability.

Temporary differences eventually do what?

Reverse

Current tax expense is based on what?

Current taxable income.

What is treated the same?

Book income and tax income in no difference?

What are permanent differences?

Differences that never reverse, affects the effective tax rate but not future taxes, and no deferred tax asset or liability

What are temporary differences?

Differences that reverse in the future and creates deferred taxes

What are examples of temporary differences?

Depreciation differences, warranty expense, bad debt expense, accrued expense, and unearned revenue

What does favorable do?

Lowers current taxable income or increase future deductions

What is unfavorable?

Increases current table income or delays deductions

What is deferred tax asset?

future tax benefit that occurs when expense is recognized in books before tax deduction

What is deferred tax liability?

Future tax payment that usually occurs when income is recognized in books before tax or deductions happen earlier than book deductions

How to remember deferred tax assets?

I paid tax now, but will save tax later

What is an easy way to remember deferred tax liability?

I saved tax now, but will pay more later