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Accounting for Income Taxes
Income Tax Accounting
16
Accounting
03/28/2007

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Cards

Term
What is a temporary difference?
Definition
A difference between pretax accounting income and taxable income.
Term
What are the types of temporary differences?
Definition
Deferred tax assets and deferred tax liabilities
Term
What are future deductible amounts?
Definition
Taxable income will be decreased relative to accounting income in one or more future years.
Term
Estimated expenses that are recognized on income statements when incurred, but deducted on tax returns in later years when actually paid is an example of what?
Definition
A future deductible amount.
Term
When measuring a tax liability, should the company use the enacted tax rate or the tax rate on the tax reform bill?
Definition
The enacted tax rate should be used.
Term
How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?
Definition
Deferred tax assets and deferred tax liabilities are not reported individually, but combined instead into a net current amount and a net noncurrent amount. Each is reported as either an asset – if deferred tax assets exceed deferred tax liabilities, or as a liability – if deferred tax liabilities exceed deferred tax assets.
Deferred tax assets and deferred tax liabilities are classified as either current or noncurrent according to how the related assets or liabilities are classified for financial reporting. For instance, a deferred tax liability arising from estimated warranty expenses would be classified as current if the warranty liability is classified as current. A deferred tax asset or liability that is not related to a specific asset or liability should be classified according to when the underlying temporary difference is expected to reverse.
Term
Additional disclosures are required pertaining to the income tax espense reported on the income statement. What are the needed disclosures?
Definition
Pertaining to the income tax expense reported in the income statement, disclosure notes should indicate (a) the current portion of the tax expense (or tax benefit), (b) the deferred portion of the tax expense (or tax benefit), with separate disclosure of amounts attributable to (c) the portion that does not include the effect of the following separately disclosed amounts, (d) operating loss carryforwards, (e) adjustments due to changes in tax laws or rates, (f) adjustments to the beginning-of-the-year valuation allowance due to revised estimates, (g) investment tax credits.
Term
What is intraperiod tax allocation?
Definition
Intraperiod tax allocation means the total income tax obligation for a reporting period is allocated among the income statement items that gave rise to the income tax. The following items should be reported net of their respective income tax effects:
• Income (or loss) from continuing operations
• Discontinued operations
• Extraordinary items
Term
What are some types of temporary differences reported on the tax return after the income statement?
Definition
Revenues (or gains)
* Installments sales of property (installment method for taxes).
* Unrealized gain recording investments at fair value (taxable when asset is sold).

Expenses (or losses)
*Estimated expenses and losses (tax deductible when paid).
*Unrealized loss from recording investments at fair value or inventory at LCM (tax deductible when asset is sold).
Term
What are some types of temporary differences reported on the tax return before the income statement?
Definition
Revenues (or gains)
* Rent collected in advance
* Subscriptions collected in advance
* Other revenue collected in advance
Expenses (or losses)
* Accelerated depreciation on tax return (straight-line depreciation on the income statement)
* Prepaid expenses (tax deductible when paid)
Term
What journal entry do you make at the end of each reporting period to adjust the valuation allowance?
Definition
Valuation allowance XXX

Income Tax Expense XXX
Term
What is a valuation allowance?
Definition
It is an indirect reduction (contra asset) in a deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Term
What journal entry is needed to set up a valuation allowance?
Definition
Income Tax Expense XXX

Valuation Expense XXX
Term
What is a deferred tax asset?
Definition
Taxes to be saved in the future when future deductible amounts reduce taxable income (when the temporary differences reverse).
Term
What is a deferred tax liability?
Definition
Taxes to be paid in the future when future taxable amounts become taxable (when the temporary differences reverse).
Term
What is taxable income?
Definition
It comprises revenues, expenses, gains and losses as measured according to the regulations of the appropriate taxing authority.