CH 19 Class Notes-1

CH 19 Class Notes-1 - CHAPTER 19 ACCOUNTING FOR INCOME...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 19 – ACCOUNTING FOR INCOME TAXES I. Deferred Income Taxes A. Temporary Differences 1. Accounting Income: Determined by FASB 2. Taxable Income: Determined by IRC 3. B. 3 Steps to Record Income Taxes 1. 2. 3. C. Balance Sheet Perspective: Tax Rate * Temporary Difference D. Deferred Tax Liabilities : Represent a future taxable amount because taxable income will be increased relative to accounting income in the year(s) when the temporary differences reverse. 1. 2. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
EXPENSE REPORTED ON TAX RETURN BEFORE INCOME STATEMENT Woods Temporary Services reported pretax income in 2008, 2009, 2010, and 2011 of $100 million. In 2008, an asset was acquired for $100 million. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is deducted (by MACRS) over 2008-2011 as follows: $33 million, $44 million, $15 million, and $8 million. No other depreciable assets were acquired. The enacted tax rate is 40% each year. ($ in millions) Temporary Difference: originates reverses H . . . 2008 2009 2010 2011 Add: Depreciation on income statement 25 25 25 25 Less: Depreciation on tax return (33 ) (44 ) (15 ) (8 ) $ (8) $ (19) $10 $17 2
Background image of page 2
RECORDING INCOME TAXES - 2008 ($ in millions) Current Future Future Year Taxable Taxable Amounts Amounts 2008 2009 2010 2011 [Total] Accounting income 100 Temporary difference: Depreciation (8 ) (19) 10 17 8 Taxable income 92 Enacted tax rate 40 % 40 % Tax payable currently 36 .8 Deferred tax liability 3.2 . Deferred tax liability: Ending balance $3.2 Less: Beginning balance 0 .0 Change in balance $3 .2 Journal entry at the end of 2008 Income tax expense (to balance) 40 Income tax payable (determined above) 36.8 Deferred tax liability (determined above) 3.2 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
RECORDING INCOME TAXES – 2009 ($ in millions) Future Future Current Taxable Taxable Year Amounts Amounts 2008 2009 2010 2011 [Total] Accounting income 100 Temporary difference: Depreciation (8) (19 ) 10 17 27 Taxable income 81 Enacted tax rate 40 % 40 % Tax payable currently 32 .4 Deferred tax liability 10.8 . Deferred tax liability: Ending balance $10.8 Less: Beginning balance (3 .2) Change in balance $ 7 .6 Journal entry at the end of 2009: Income tax expense (to balance) 40 Income tax payable (determined above) 32.4 Deferred tax liability (determined above) 7.6 4
Background image of page 4
RECORDING INCOME TAXES – 2010 ($ in millions) Future Future Current Taxable Taxable Year Amount Amount 2008 2009 2010 2011 [Total] Accounting income 100 Temporary difference: Depreciation (8) (19) 10 17 17 Taxable income 110 Enacted tax rate 40 % 40 % Tax payable currently 44 Deferred tax liability 6.8 . Deferred tax liability:
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 21

CH 19 Class Notes-1 - CHAPTER 19 ACCOUNTING FOR INCOME...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online