100%(3)3 out of 3 people found this document helpful
This preview shows page 1 - 2 out of 4 pages.
Vc bTemporary DifferencesSteps: Payable, Deferred, Expense.BI<TI Deferred tax assetsIncome tax expense XXXDeferred tax assets XXXIncome tax payable XXX(When reversing: DTA in Credit)BI>TIDeferred tax liabilitiesIncome tax expense XXXDeferred tax liability XXXIncome tax payable XXX(When reversing: DTL in Debit)If record income taxes:Income Tax Expense 100Deferred Tax Liability 10Income Taxes Payable 90Then, financial statement footnotes:Deferred portion of tax expense = 10Current portion of tax expense = 90DTA never realized (Allowance):Income tax expense XXXValuation Allowance – DTA XXX(Now, net DTA decrease by XXX.)Allowance Adjustment:Allowance – DTA XXXIncome tax expense XXXPermanent DifferencesSteps: Deferred, Payable, Expense.ABC has pre-tax financial income of 97,000 which includes an expense of $3,000 that is never deductiblefor tax purposes. The tax rate is 40%.To record tax expense:Income Tax Expense 40,000Income Tax Payable 40,000**IT Payable = (97,000 + 3,000) x 40%Tax expense ≠ book income x tax rateABC has pre-tax financial income of 97,000 which includes an expense of $3,000 that is never deductiblefor tax purposes and an expense of $4,000 that will be deductiblenext year. The tax rate is 40%.To record tax expense:Income Tax Expense 40,000Deferred Tax Asset1,600*Income Tax Payable 41,600***Deferred Tax Asset = 4,000 x 40%**Income Tax Payable = (97,000 + 4,000 + 3,000) x 40%Carry Back: last 2 years (tax refund)Income tax refund receivable XXXBenefit due to Loss Carryback XXXCarry Forward: next 20 years (DTA)Deferred tax asset XXXBenefit due to loss carryforward XXXTo record tax expense including the use of the remaining NOL carryforward benefit:Income tax expense XXXDeferred tax asset XXXIncome tax payable XXXTo record allowance for expected unused benefit:Benefit due to loss carryforward XXXAllowance-DTA XXXRate Change: ABC’s existing deferred tax liability is $190,000 but should be $192,000 after the change inthe 2016 tax rate enacted in 2014.In 2014, to record the enacted 2016 rate change:Income tax expense 2,000Deferred tax liability 2,000Bond ValuationA firm offers $1000 of 4% bonds that are payable in 10 years with annual interest payments ($1000 x 4% = $40). If the market rate today is 5%, what is the value of the bond?PV of Principal (n = 10, r = 5%) = $1000 x 0.61391= $613.91PV of Interest Payments (n = 10, r = 5%)= $40 x 7.72173 = $308.87So, PV of bond = $613.91 + $308.87 = $922.78Issue BondsPV < FV bond sold at a discount, (PV/FV)Issue Bond at discount:Cash XXXDiscount on Bond Payable XXXBonds Payable XXXPV > FV sell at a premium, (PV/FV)Issue Bond at premium:Cash XXXPremium on Bonds Payable XXXBonds Payable XXXBonds Issue Costs (20,000 for 5-year SL)At issue:Unamortized Bond Issue Costs 20,000Cash 20,000At each year:Bond Issue Expense 4,000Unamortized Bond Issue Costs 4,000To record interest accrued but not yet paid:Interest Expense XXXInterest payable XXXThen at payment:Interest payable XXXCash XXXTo record interest accrue and paidat same FY:Interest expense XXXCash XXXSL(1/1/14) issue 100,000, 5-year 7% bonds at 102.