CHAPTER 20 Accounting for Income Taxes

CHAPTER 20 Accounting for Income Taxes - Chapter 20...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 20 Accounting for Income Tax LECTURE OUTLINE The material in this chapter can be covered in three class periods. The conceptual issues in this chapter are difficult and the accounting procedures complex. Illustrations 20-1 and 20-2 can aid in demonstrating the recognition of deferred tax liabilities and assets and the calculation of income tax expense. Illustration 20-3 provides examples of temporary and permanent differences. Point out to the students how these examples result in different basis for book and tax purposes. A. Taxable Income and Financial Income. 1. Taxable income is calculated in accordance with prescribed tax regulations and rules. 2. Financial income is measured and reported in accordance with generally accepted accounting principles. 3. Differences between taxable income and financial income occur because tax regulations and GAAP are frequently different. B. Deferred Income Taxes. 1. A temporary difference is the difference between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable amounts or deductible amounts in future years when the asset is recovered or the liability is settled. a. Taxable amounts increase taxable income. b. Deductible amounts decrease taxable income. 2. Deferred income taxes are the future tax effects of temporary differences.
Background image of page 1

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

View Full DocumentRight Arrow Icon
Teaching Tip Illustration 20-1 provides a numerical example of the recording of a deferred tax liability. 1. A deferred tax liability represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year. 2. Calculation of deferred tax liability. a. Book basis—tax basis of asset or liability = cumulative temporary difference; cumulative temporary differences x enacted tax rate. b. Scheduling of future taxable amounts. 3. Income tax expense (benefit) has two components: a. Deferred tax expense (benefit) is the increase (decrease) in the deferred tax liability balance from the beginning to the end of the accounting period. b. Current tax expense (benefit) which is equal to the amount of income taxes paid or payable for the period. 4. Discuss whether a deferred tax liability meets the definition of a liability under SFAC No. 6 . a. Results from a past transaction. b.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/10/2011 for the course FSD 201 taught by Professor Huong during the Spring '10 term at Beacon FL.

Page1 / 11

CHAPTER 20 Accounting for Income Taxes - Chapter 20...

This preview shows document pages 1 - 3. Sign up to view the full document.

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