Chapter 16

Income Taxes

If taxable income < pretax accounting income,

DTL

If taxable income > pretax accounting income,

DTA

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax liability?

Depreciation early in the life of an asset.

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

Subscriptions collected in advance.

Of the following temporary differences, which one ordinarily creates a deferred tax asset?

Accrued warranty expense.

The valuation allowance account that is used in conjunction with deferred taxes relates:

Only to deferred tax assets.

Which of the following causes a permanent difference between taxable income and pretax accounting income?

Interest income on municipal bonds.

Step 1 of Calculating Income Tax Expense

calculate taxable income

Step 2 of Calculating Income Tax Expense

calculate income tax payable

Step 3 of Calculating Income Tax Expense

Calculate the ending balance in the DTA and DTL

Step 4 of Calculating Income Tax Expense

determine the change in the DTA and DTL accounts

Step 5 of Calculating Income Tax Expense

prepare the tax expense journal entry

temporary difference

a diffrence between the accounting book value of an asset or liability and the tax basis (tax book value) of the asset or liability

which of these accounts does NOT create a TEMPORARY difference?

insurance benefits received

which of these accounts does NOT create a PERMANENT difference?

accrued expense liabilities

effective tax rate

the percentage rate of tax the corporation actually pays on its accural accounting AI

how to calculare effective tax rate

income tax expense (step 5) / pretax accounting income AI (start of step 1)

statutory tax rate

rate of tax paid (cash paid) on the current year tazable income TI. Rate is published bu the IRS

if income tax expense > income tax payable

DTL

if income tax expense < income tax payable

DTA