Acc 302- Chapter 19 Study Guide
Acc 302- Chapter 19 Study Guide Acc 302
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This 3 page Study Guide was uploaded by Nicole Nord on Sunday November 15, 2015. The Study Guide belongs to Acc 302 at Ball State University taught by James Schmutte in Fall 2015. Since its upload, it has received 99 views. For similar materials see Intermediate Accounting 2 in Accounting at Ball State University.
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Date Created: 11/15/15
ACC 302 Fall 2015 Chapter 19Study Guide Accounting for Taxable Income 1 PreTax financial income This is a financial reporting term used to define the income calculated using GAAP methods also known as income before taxes or income for book purposes Professor Schmutte most often calls it income for book purposes a Make sure you know if it is a permanent or a timing difference this is quite important see below for more of an explanation b Our professor will definitely have a question similar to that of 194 where he asks us to go from pretax financial income to find the taxable income or viseversa Be sure to look over the solution guides online 2 Taxable income the portion of a company s income that is subject to taxation This term is a tax accounting term which refers to the income left over after all tax deductions and exclusions have been taken 3 Deferred tax liability represents an increase in taxes payable in future years as a result of temporary tax differences in the current year A deferred tax liability will only come about when you have a temporary or timing difference Look over illustration 198 on page 1121 4 Tax accounting objectives a To recognize the amount of taxes payable or refundable for the current year b To recognized deferred tax liabilities and assets to determine future tax consequences 5 Deferred tax asset represents a decrease in taxes payable in future years as a result of deductible temporary differences in the current year Look over illustration 1916 on page 1 124 6 Book Tax differences a Permanent there are two ways to have permanent differences i One is a result of items that are entered into PreTax financial income but never are recorded for tax purposes 1 Examples interest received on state and municipal bonds expenses incurred in obtaining tax exempt income proceeds from life insurance carried by the company on key officers or employees premiums paid for life insurance carried by the company on key officers and employees and fines and expenses resulting from violating the law ii The second are items that are entered into taxable income but are never recorded for book purposes 1 Examples percentage depletion of natural resources in excess of their cost the deduction for dividends received from US corporations generally 70 to 80 b Temporary there are also two kinds of temporary differences i Taxable temporary differences are differences that will result in taxable amounts in futures years ACC 302 Fall 2015 ii Deductible temporary differences are differences that will result in deductible amounts in future years iii See 1922 on page 1127 for a detailed list of temporary timing differences c When calculating deferred tax assets or liabilities we must keep in mind that future tax rates can change So when we are calculating future liabilities or assets we must use the enacted tax rate which is just a fancy way of saying that we need to use the tax rate that we expect to be charged in the future 7 Journal Entries a Recording income taxes payable income tax expense and deferred income taxes for practice question 194 Income Tax Expense XX Deferred Tax Asset1 XX Deferred Tax Liability XX Income Tax Payable XX b Recording just a deferred tax liability Income Tax Expense XX Income Taxes payable XX Deferred Tax liability XX c Recording Just a deferred tax asset Income Tax expense XX Deferred Tax asset XX Income Taxes Payable XX Accounting for Net Operating Losses 1 NOL occurs in a year when deductible tax expenses exceed taxable revenue The tax code allows for the tax payer to use the losses from one year to offset income in other years 1 Remember DO NOT abbreviate this to DTA or DTL professor Schmutte speci cally said multiple times that we are not allowed to abbreviate this ACC 302 Fall 2015 2 Carryback and Carry forward provisions A company may carry back their current year s losses two years and then carry them forward 20 years to offset future profits Companies MUST carry their losses back to the FURTHEST year first and then to more recent years of profit Once a company has carried their losses back then they can carry the remainder forward for 20 years a A company may elect to forego the loss carry back and only carry the loss forward This is risky however because it assumes that the company will have future profitable years and that may not always be the case Journal Entries for Carryback and Carry forward a To recognize benefit of loss carryback Income Tax Refund Receivable XX Benefit due to operating loss Carry back XX b To recognize benefit of loss carry forward Deferred Tax Asset XX Benefits due to operating loss carry forward XX c Occasionally companies know that they will not make sufficient profit in the next 20 years to receive the whole benefit of the loss carry forward In instances like these we will use a Valuation Allowance account to reduce the deferred tax asset Benefits due to operating loss carry forward XX Allowance to Reduce Deferred Tax Asset to expected realizable value XX Financial Statement Representation l 3 Balance Sheet an individual deferred tax liability or asset is classified as current or non current based on the classification of the related asset or liability Classifying assets and liabilities a Classify the amounts as current or noncurrent b Determine the net current amount by summarizing the various deferred tax assets and liabilities classified as current Report accordingly c Determine the noncurrent amount in the same manner and record on the balance sheet When recording the book tax differences on the income statement you record just the transactions and then give a more detailed account in the footnotes Problems From Book To Review E195 196 197 1922 1913 199 P194 191 195
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