Ch 17: Accounting for Income Taxes

What is the goal of financial accounting?

put numbers on financial statements for 10K

SFAS No 109= ___ and ___

ASC 740 and FIN 48

How to deal with taxes as per standards for specific instances (FASB ID#)

FIN 48

Total tax expense on the income statement =

Current tax expense
Deferred tax expense
Federal/state/foreign income taxes

What is excluded from total tax expense? (which types of taxes are excluded)

Property
Payroll
Sales
Excise
Other non-income taxes

Total tax expense is also known as

tax provision

What are the two objectives of ASC 740?

Recognize the amount of taxes payable or refundable in current year
Recognize DTAs and DTLs

reduction in future taxes IF you have future taxes

tax benefit

future deductible amounts (ex: NOLs)

DTA

future taxable amounts (ex: depreciation)

DTL

What are the steps to account for income taxes following US GAAP (ASC 740)- 7 steps

Adjust PTBI for Perm BTDs
Identify All Temp BTDs (including tax carryforward)
Compute Current Income tax Exp (benefit)
Determine End Bals DTAs and DTLs
Determine whether VAA needed
Calc Differred Income Tax Exp (benefit)
Account for Uncertain Tax Prositions

what is FIN 48, now codified as part of ASC 740, requireing a 2 step process to account for:

income tax uncertainty provisions

ETR =

Total Tax Provision / Pre Tax Book Income

Book equivalent of taxable income (BETI) =

Pretax book income ± Permanent BTDs

The ETR is affected by ___ BTDs

Permanent

Total tax provision (estimate) =

BETI x Statutory Rate
= Current Tax Exp + Deferred Tax Exp

What are some common permanent BTDs

Tax Exempt int Income
Non deductible fines and penalties
Tax Credits
Political Contributions
M&E exp
DRD
Key employee life insurance proceeds and prems

differences between the tax basis of an asset or liability and its reported amount in the financial statements to generate taxable or deductible amounts in future years

temporary BTDs

Future tax costs recorded as a DTA; cumulatively favorable

Taxable Temp BTD

Future tax benefit recorded as a DTL; cumulatively unfavorably (ex: warranty reserve)

Deductible Temp BTD

What are some DTAs

Accrued Expenses
Unearned income
Deferred Compensation
NOL (and capital loss carryover)

What are some DTLs

Depreciation exp
Goodwill amortization

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