Lecture20 2010 11 27 PostClass

Lecture20 2010 11 27 PostClass - Lecture 20 Accounting for...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 20 Accounting for Income Taxes
Background image of page 1

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

View Full DocumentRight Arrow Icon
Announcements • Exam #2: Distribution during TA office hrs • Regrade Requests: Exam #1 – Available for Pickup from Accounting Suite on 12/1 egrade Requests: Exam #2 • Regrade Requests: Exam #2 – Due 4:30pm 12/1 • HW #3 Solutions posted • Final Exam 12/17 – Notify of conflicts by 12/6 NO requests after that date will be entertained!!
Background image of page 2
Objectives To understand the differences between financial accounting and tax accounting – the differences between the income tax expense for a period and the amount of income tax payable for that same period: – Timing: Temporary differences – Scope: Permanent differences To understand the effects of certain events on income taxes – Net operating losses – Valuation allowance – Rate Reconciliation To interpret the income tax disclosures provided in the financial statements
Background image of page 3

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

View Full DocumentRight Arrow Icon
GAAP vs Tax Code GAAP determines the amount of pre-tax income (revenues and expenses, etc.) to be reported in the income statement for each period. The tax code determines the amount of taxable income to be reported to the taxing authority for each period. GAAP (“Book”) pre-tax income is used as the basis for the determination of the income tax expense for a period. However, taxable income (determined in accordance with the tax code) is the basis for determining the amount of income taxes payable for that period.
Background image of page 4
There are many instances where GAAP and the tax code differ. Some examples of differences: s Revenues: Amounts collected from customers in advance of providing goods or services (i.e. rent) – GAAP: advances are included in income (recognized as revenue) in the period when they are earned – Tax Code: advances are taxable when they are received xpenses: s Expenses: – GAAP: Different depreciation methods are permitted – Tax Code: Only Modified Accelerated Cost Recovery System (MACRS) is allowed. Detailed tables and useful lives for each asset class published by IRS. s Other: Interest earned on tax exempt municipal bonds – GAAP: Included in income as it is earned (passage of time) – Tax Code: Never included (i.e. not federally taxable)
Background image of page 5

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

View Full DocumentRight Arrow Icon
ifferences in Taxable and GAAP Income Differences in Taxable and GAAP Income
Background image of page 6
Timing Difference: An Illustration A firm purchased a piece of equipment at the beginning of 2006 at a cost of $100,000. The depreciation associated with the use of the asset was determined as follows: For Financial Reporting For Taxes Depreciation Method Straight-line MACRS Useful life 3 years 2 years (60%, 40%) Residual Value $10,000 $0
Background image of page 7

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

View Full DocumentRight Arrow Icon
Over the useful life of the asset, depreciation expense will be: Depreciation Schedule Year Book Dep’n Tax Dep’n Difference Accum. Diff. 2006
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/18/2010 for the course ACCT 101 taught by Professor Armstrong during the Fall '09 term at UPenn.

Page1 / 32

Lecture20 2010 11 27 PostClass - Lecture 20 Accounting for...

This preview shows document pages 1 - 9. Sign up to view the full document.

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