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This 7 page Class Notes was uploaded by Emily McIlhattan on Wednesday February 11, 2015. The Class Notes belongs to MGMT 351 at Purdue University taught by Byong Ro in Winter2015. Since its upload, it has received 351 views. For similar materials see Intermediate Accounting II in Accounting at Purdue University.
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Date Created: 02/11/15
MGMT 351 Lecture Income Taxes Last Lecture I Leases Cont d Current Lecture Outline Accounting income vs Taxable Income Current Lecture Accounting Income vs Taxable Income a Tax accounting is largely cashbased with some exceptions while nancial accounting is accrual based b Taxable Income taxable revenuesdeductible expenses c Pretax Acc Income Revs Realized Exps Accrued i Three main reasons there s a difference 1 PDs permanent differences a Affect only one period no interperiod tax allocation ne Deferred Taxes either in Financial accounting only or tax accounting only not both b Deferred Taxes postponing the tax payment i Revenues for accounting but not for tax 1 Interest income on taxexempt stategovernment bonds 2 Life insurance proceeds 3 Up to 80 of dividend income ii In Tax Income not Acc 1 Dividend income beyond 80 limit iii Expenses for Accounting and Not Tax can not deduct for tax 1 Fines and penalties 2 Charitable contributions 3 Life insurance premium iv In Tax not Acc 1 NOL deductions 2 TDs Temporary differences a These are just about timing and eventually there will be no difference b Effect at least 2 years by nature 3 Net Operating Losses NOL carryovers over time Reconciliation of Income a Pretax Acc Income b PDs c TDs d NOL Carryovers e Tax Income f lTxPayable g Change in Deferred Tax Asset or Liability or both h ITxExp III Deferred Taxes a Reduces Tax income this year I future taxable amount I more future taxes I increasing Def Tax Liab this year b Increasing Tax income this year I future deductible amount I less future taxes I increasing def tax asset this year IV Deferred Tax Asset like prepaid tax DTL like an unpaid tax presented on balance sheet this year HP161 1 2014 Pretax Al 100k PD Fine 3k lRev on muni bonds 4k TD Wty exp 2k Construc pro ts 9k DExp 10k Loss carryover Txl 82k 2 Def Tax I Future Years I A L TD FDA wty exp 2k4 rate for future FTA cons pro t I 9k4 FTA deb exn I 10k4 I Balance 800 76k 3 lTxExp 39600 Def Tax Asset 800 lTxPay 32800 I 82000 4 Def Tax Liab 7600 4 2014 US Income before lTx 100k Less Income tax Current 32800 Deferred net 39600 NI 60400 BS Def Tax A Current Noncurrent we only know total 800 Def Tax L Current Noncurrent same thing 7600 r Offset Curr Def Tx A Curr Def Tx L and report only the net amount Do the same for Noncurr Def Tx A amp Def Tx L 5 TxExp 41200 Def Tax Asset 800 lTxPay 32800 Def Tax Liab 7600 Allow For Det Tax Asset 800 HP 162 1 2014 2015 2016 TXI 428k 485k 393k ITXPay 1498k 1455k 1179k 400k22k50k428k Def Tax 2 I 3915 3916 3917 after3917 I A TD Dep 4k 5k 6k 7k 66k Royalty 30k 20K 15k balance 15k 66k 2014 TXExp 1414k DefTXA 15k lTxPay 1498k DefTXL 66k 2014 US lTxExp Current 1498k Deferred 84k 1414k 2014 85 current DefTaxA 9k DefTaxL 0 noncurrent DefTaxA 6k DefTaxL 66k DefTax l 3916 3917 after3917 l A L TD Dep 14k 16k 17k 141k Royalty 90k 20k 33k balance 33k 141k 2015 TxExp 1355k DefTXA 18k lTXPay 1455k DefTXL 75k 2015 US lTxExp Current 1455k Deferred 105k 1355k 2015 85 current DefTaxA 27k DefTaxL 0 noncurrent DefTaxA 6k DefTaxL 141k Def Tax l 3917 After 3917 l A L TD Dep 25k 59k 252k Royalty 36k 4k 12k balance 12k 252k 2016 TxExp 150k TxPay 1179k Def Tx A 21k Def Tx L 111k 2016 US TxExp Current 1179k Deferred 150k 2016 85 current Def Tax A 108k Def Tax L 0 noncurrent Def Tax A 12k Def Tax L 252k Lecture Allowance for deferred Tax Asset When it is more than likely than not more than 50 likely that all or a part of future deductible amount Def Tax Asset will not be realized in the future All For Def Tax Asset a contra account to Def Tax Asset is required E1630 1 Defo Asset 48k 120k4 TxExp xx Def Tx Asset 48k TxPay xx Bal Sheet Def Tax Asset current 96k 20 of 48k noncurrent 384k 80 of 48k 2 Allowance for Def Tx A 144k lTxExp xx Def Tx Asset 48k lTxPay xx Allow for Def TXA 144k 30 of 48k Bal Sheet Current Assets Def Tax Asset 96k Allow 2 6720 Noncurr Assets Def Tax Asset 384k Allow 11520 26880 Lecture Loss Carryovers tax law gives a bene t to the company NOL Tax Rev lt Tax Deductible Expenses Back 2 years and forward 20 years from current year so total 22 years For 2 year back refund receivable 20 year forward deferred tax asset P1652 NOL Carryovers 3911 3912 3913 3914 l 3915 TxlncLoss 331k 225k 943k 1 Tax Refund for CB 20890 12131115 lTx Ref Rec 20890 lTx BenefitLoss CB 20890 or lTaxExp 2 Tax Bene t from Loss CF 387k Def Tax A 11610 387kassume 30 Def Tx Asset 11610 lTx BenefitLoss CF 11610 or lTxexp Q What if unlikely to be realized lTaxExp 11610 3a 3b Def Tx Asset 11610 Tx BenefitLoss CF 11610 or Txexp Allow For Def Tax A 11610 3911 3912 3913 3914 I 3915 Txoss 39k Tax Refund for CB 15246 Tx Ref Rec 15246 Tx BenefitLoss CB 15246 39113912 3913 3914 I 3915 3916 Txoss 331k 225k 39k 28k Loss CB at end of 2016 166k Tax Refund Rec 5644 2016 Loss available after CB 114k 12131116 Tx Ref Rec 5644 Def Tx Asset 3420 TxBen Loss CB 5644 TxBen Loss CF 3420 114kassume 30
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