A. If a $150,000 balance in Deferred Tax Liability was computed by use of a 30%
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Question
A. If a $150,000 balance in Deferred Tax Liability was computed by use of a 30% rate, the underlying cumulative temporary difference amounts to $ __________.
B. An income statement that reports current tax benefit of $63,000, and deferred tax expense of $19,000 will report total income tax _____________ of $________.
C. If a taxable permanent difference originates in 2012, it will cause taxable income for 2012 to be _________(less than, greater than) pretax financial income for 2012.
D. If the income statement shows total income tax expenses of $186,000 and deferred tax expenses of $45,000, the total taxes due on the tax return for the period are ______________.
E. If total tax expense is $225,000 and the current expense is $155,000, then the deferred tax _____________ (expense, benefit) is $ __________.
F. In a period in which a deductible temporary difference reverses, the reversal will cause taxable income to be __________ (less than, greater than) pretax financial income.
G. A decrease in the Deferred Tax Assets account on the balance sheet is recorded by a _________ (debit, credit) to the Income Tax Expense account.
H. If a corporation’s “Income tax payable” on the balance sheet totals $100,000, the company made estimated payments during the year totaling $40,000, and the tax rate is 40%, taxable income equals $ ________.
I. A valuation account ___________ (reduces, increases) the balance reported in the balance sheet for a deferred tax asset to the amount expected to be realized.
J. Deferred taxes _________ (are, are not) recorded to account for temporary differences.
Explanation / Answer
A. If a $150,000 balance in Deferred Tax Liability was computed by use of a 30% rate, the underlying cumulative temporary difference amounts to $ 1,05,000.
To compute the temporary difference, Temporary difference = Carrying amount - Tax base = 150,000 - 30% = 105,000
J. Deferred taxes are recorded to account for temporary differences
An account on a company's balance sheet that is a result of temporary differences between the company's accounting and tax carrying values, the anticipated and enacted income tax rate, and estimated taxes payable for the current year. This liability may or may not be realized during any given year, which makes the deferred status appropriate.
B. An income statement that reports current tax benefit of $63,000, and deferred tax expense of $19,000 will report total income tax 0 of $82,000 net operating loss.
C. If a taxable permanent difference originates in 2012, it will cause taxable income for 2012 to be less than, pretax financial income for 2012.
Pretax financial income is reported on the income statement and is often referred to as income before income taxes. Taxable income is reported on the tax return and is the amount upon which a company’s income tax payable is computed.
A permanent difference is a difference between taxable income and pretax financial income that, under existing applicable tax laws and regulations, will not be offset by corresponding differences or “turn around” in other periods. Therefore, a permanent difference is caused by an item that: (1) is included in pretax financial income but never in taxable income, or (2) is included in taxable income but never in pretax financial income.
D. If the income statement shows total income tax expenses of $186,000 and deferred tax expenses of $45,000, the total taxes due on the tax return for the period are 0.
E. If total tax expense is $225,000 and the current expense is $155,000, then the deferred tax Expenses (expense, benefit) is $ 225,000.
A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.
F. In a period in which a deductible temporary difference reverses, the reversal will cause taxable income to be less than pretax financial income.
A temporary difference is a difference between the tax basis of an asset or liability and its reported (carrying or book) amount in the financial statements that will result in taxable amounts or deductible amounts in future years when the reported amount of the asset is recovered or when the reported amount of the liability is settled. The temporary differences discussed in this chapter all result from differences between taxable income and pretax financial income which will reverse and result in taxable or deductible amounts in future periods.
An originating temporary difference is the initial difference between the book basis and the tax basis of an asset or liability. A reversing difference occurs when a temporary difference that originated in prior periods is eliminated and the related tax effect is removed from the tax account.
G. A decrease in the Deferred Tax Assets account on the balance sheet is recorded by a debit to the Income Tax Expense account.
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