16 Ch0. 16 - Income Taxes

16 Ch0. 16 - Income Taxes - Click to edit Master subtitle...

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Unformatted text preview: Click to edit Master subtitle style 1 FASB 109 & FIN 48 Income Taxes Chapter 16 2 Learning Objectives Income Taxes 1. Describe the types of temporary differences that cause deferred tax liabilities and determine the amounts needed to record periodic income taxes. 2. Identify and describe the types of temporary differences that cause deferred tax assets. 3. Describe when and how a valuation allowance is recorded for deferred tax assets. 4. Explain why nontemporary differences have no deferred tax consequences. 5. Explain how a change in tax rates affects the measurement of deferred tax amounts. 6. Determine income tax amounts when multiple temporary differences exist. 7. Describe when and how an operating loss carryforward and an operating loss carryback are recognized in the financial statements. 8. Explain how deferred tax assets and deferred tax liabilities are classified and reported in a classified balance sheet and describe related disclosures. 9. Demonstrate how to account for uncertainty in income tax decisions. 10. Explain intraperiod tax allocation. Tax Code Exchanges Investors and Creditors Financial Statements Pretax Financial Income or Book Income GAAP Financial Statement Income Tax Expense Taxable Income IRS Income Tax Payable Tax Return vs . IRS l l Corporations must file income tax returns following the guidelines developed by the Internal Revenue Service (IRS), thus they: calculate taxes payable based upon IRS code, calculate income tax expense based upon GAAP. Amount reported as tax expense will often differ from the amount of taxes payable to the IRS. 3 l Fundamentals of Accounting for Income Taxes The differences between pretax GAAP financial income and taxable income can be divided into two types - either permanent differences or temporary differences. Fundamentals of Accounting for Income Taxes 4 Intraperiod tax allocation: Interperiod tax allocation: Matches a portion of the provision for income tax to the applicable components of net income. Must show intraperiod tax allocation for: Income from continuing operations Discontinued operations Extraordinary operations The objective of interperiod tax allocation is to recognize through the matching principle the amount of current and future tax related to events that have been recognized in financial accounting income. 1. Current Year Taxes a. Payable (liability) b. Refundable (asset) 1. Future Year Taxes a. Deferred tax liability b. Deferred tax asset/benefit How much we owe now or how much of a refund we are getting. How much future liability or future savings we will have. Permanent Differences 5 Differences Permanent differences are items of revenue and expense that either : 1. Enter into the pretax GAAP financial income, but never enter into taxable income....
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16 Ch0. 16 - Income Taxes - Click to edit Master subtitle...

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