19_Lecture_Notes_13th_ed_KIESO.IAIM.cp19.v2

Intermediate Accounting

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CHAPTER 19 Accounting for Income Taxes LEARNING OBJECTIVES 1. Identify differences between pretax financial income and taxable income. 2. Describe a temporary difference that results in future taxable amounts. 3. Describe a temporary difference that results in future deductible amounts. 4. Explain the purpose of a deferred tax asset valuation allowance. 5. Describe the presentation of income tax expense in the income statement. 6. Describe various temporary and permanent differences. 7. Explain the effect of various tax rates and tax rate changes on deferred income taxes. 8. Apply accounting procedures for a loss carryback and a loss carryforward. 9. Describe the presentation of deferred income taxes in financial statements. 10. Indicate the basic principles of the asset-liability method. *11. Understand and apply the concepts and procedures of interperiod tax allocation. *This material is covered in an Appendix to the Chapter. CHAPTER REVIEW Introduction 1. Chapter 19 addresses the issues related to accounting for income taxes. Taxable income is computed in accordance with prescribed tax regulations and rules, whereas accounting income is measured in accordance with generally accepted accounting principles. Unfortu- nately for accountants, tax regulations and accounting principles are not always in agreement. 2. (S.O. 1) Due to the fact that tax regulations and generally accepted accounting principles differ in many ways, taxable income and financial income frequently differ. The following represent examples of events that can result in such differences: (a) depreciation computed on a straight-line basis for financial reporting purposes and on an accelerated basis for tax purposes, (b) income recognized on the accrual basis for financial reporting purposes and on the installment basis for tax purposes, and (c) warranty costs recognized in the period incurred for financial reporting purposes and when they are paid for tax purposes. *Note: All asterisked (*) items relate to material contained in the Appendix to the chapter. 3. The items discussed in paragraph 2 above can result in temporary differences between the amounts reported for book purposes and those reported for tax purposes. 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 (increase in taxable
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income) or deductible amounts (decrease in taxable income) in future years when the reported amount of the asset is recovered or when the reported amount of the liability is settled. When the book amount of an asset or liability differs from the tax basis as a result of a temporary difference, the future tax effects on taxable income must be reported in the current financial statements. Deferred Tax Liability
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19_Lecture_Notes_13th_ed_KIESO.IAIM.cp19.v2 - CHAPTER 19...

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