Course Notes Chapter 19

Course Notes Chapter 19 - Accounting for Income Taxes...

Info icon This preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 19-1 Accounting for Income Taxes Accounting for Income Taxes Chapter Chapter 19 19
Image of page 1

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

View Full Document Right Arrow Icon
Chapter 19-2 As you already know: corporations follow GAAP when reporting income. You probably also know that corporations must file incometax returns following the guidelines developed by the Internal Revenue Service(IRS). What if… income according to IRS is different from income according to GAAP (which it is)? Overview Overview
Image of page 2
Chapter 19-3 Sincetaxes arebased on income, tax expense (based on GAAP would not equal taxes payable(based on IRS). So, the j/ewould look like: Dr: tax expense (to f/s) xxx Dr/Cr: difference? xyx Cr: taxes payable (to theirs) yyy Questions: 1. What causes thesedifferences (it matters)? 2. Wheredoes the difference go? Overview Overview
Image of page 3

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

View Full Document Right Arrow Icon
Chapter 19-4 1. TheMACRS depreciation system is used for tax purposes, and the straight-linedepreciation method is used for financial reporting purposes. 2. A landlord collects somerents in advance. Rents received are taxable in the period when they arereceived. 3. Expenses areincurred in obtaining tax-exempt income. 4. Costs of guarantees and warranties areestimated and accrued for financial reporting purposes. What Causes IRS GAAP What Causes IRS GAAP Examples of items that can causedifferences between GAAP and IRS:
Image of page 4
Chapter 19-5 What Causes IRS GAAP What Causes IRS GAAP 5. Proceeds are received from a lifeinsurancecompany becauseof the death of a key officer (the company carries a policy on key officers). 6. Estimated losses on pending lawsuits and claims areaccrued for books. These losses are tax deductible in theperiod(s) when the related liabilities aresettled. 7. Sales of investments are accounted for by theaccrual method for financial reporting purposes and theinstallment method for tax purposes. 8. Municipal bond interest (tax exempt income).
Image of page 5

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

View Full Document Right Arrow Icon
Chapter 19-6 Example: Assumethecompany reports revenue in 2017, 2018, and 2019 of $130,000, respectively. Therevenueis reported thesamefor both GAAP and tax purposes. For simplification, assumethecompany reports oneexpense, depreciation, over thethreeyears applying the straight-line method for financial reporting purposes (GAAP) and MACRS (IRS) for thetax return. What is theeffect on theaccounts of using the two different depreciation methods? What Causes IRS GAAP What Causes IRS GAAP
Image of page 6
Chapter 19-7 Revenues Expenses (S/L depreciation) Pretax financial income Incometax expense(40%) $130,000 30,000 $100,000 $40,000 $130,000 2018 30,000 $100,000 $40,000 $130,000 2019 30,000 $100,000 $40,000 $390,000 Total 90,000 $300,000 $120,000 GAAP Reporting GAAP Reporting Revenues Expenses (MACRS depreciation) Pretax financial income Incometax payable(40%) $130,000 2017 40,000 $90,000 $36,000 $130,000 2018 30,000 $100,000 $40,000 $130,000 2019 20,000 $110,000 $44,000 $390,000 Total 90,000 $300,000 $120,000 Tax Reporting 2017 What Causes IRS GAAP What Causes IRS GAAP
Image of page 7

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

View Full Document Right Arrow Icon
Chapter 19-8 Incometax expense(GAAP) Incometax payable(IRS) Difference $40,000 36,000 $4,000 $40,000 2018 40,000 $0 $40,000 2019 44,000 $(4,000) $120,000 Total 120,000 $0 Comparison Comparison 2017 Year Reporting Requirement 2017 2018 2019 What Causes IRS GAAP What Causes IRS GAAP
Image of page 8
Chapter 19-9 What Causes IRS GAAP What Causes IRS GAAP
Image of page 9

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

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern