Chapter 16 NEW

Chapter 16 NEW - Accounting 124 / Income Taxes 1 Accounting...

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Unformatted text preview: Accounting 124 / Income Taxes 1 Accounting for Income Taxes Chapter 16 Prepared by: Prof. Elizabeth K. Venuti Accounting 124 / Income Taxes 2 Terminology Tax allocation Interperiod Intraperiod Income Taxable income Financial income Tax rate Statutory (or enacted) tax rate Effective tax rate Accounting 124 / Income Taxes 3 Taxable Income versus Financial Income Temporary differences MACRS tax depreciation vs. straight-line financial depreciation. Cash-basis reporting (tax) vs. accrual basis reporting (financial) for warranty costs. Permanent (Non-temporary) differences Tax-exempt interest on municipal bonds. Fines and expenses from violation of laws. Accounting 124 / Income Taxes 4 Financial Reporting Objectives To recognize the taxes payable or refundable in the current year as a result of current and prior year transactions and events. To recognize liabilities and assets for the future tax consequences of current year events and transactions. Accounting 124 / Income Taxes 5 Deferred Tax Liability (Balance Sheet) Estimate of taxes payable in future years as a result of taxable temporary differences existing at the end of the current year. Book basis of asset > tax basis of asset. Book basis of liability < tax basis of liability. = Temporary difference x future enacted tax rates. Accounting 124 / Income Taxes 6 Deferred Tax Asset (Balance Sheet) Estimate of taxes refundable (or saved) in future years as a result of deductible temporary differences existing at the end of the current year. Book basis of asset < tax basis of asset. Book basis of liability > tax basis of liability. = Temporary difference x future enacted tax rates. Accounting 124 / Income Taxes 7 Income Tax Expense (Income Statement) Current tax expense = taxable income x enacted tax rate Deferred tax expense...
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Chapter 16 NEW - Accounting 124 / Income Taxes 1 Accounting...

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