Student Notes, Taxes(16)

A temporary difference is the difference between the

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Chapter 19-16 Temporary Difference   is the difference between the tax basis of an asset  or liability and its reported (carrying or book) amount in the financial statements  that will result in  taxable  amounts or  deductible  amounts in future years.  Future Taxable Amounts Future Taxable Amounts Future Deductible Amounts Future Deductible Amounts 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. Deferred Tax Asset  represents the increase in  taxes refundable (or saved) in future years as  a result of deductible temporary differences  existing at the end of the current year. Temporary Differences Temporary Differences Temporary Differences Temporary Differences
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Chapter 19-17 Permanent differences  are caused by items that  (1)  enter  into pretax financial income but never into taxable income or  (2)   enter into taxable income but never into pretax financial income.   See fig 19-24 for examples (you are responsible to know whether a  difference is temporary or permanent). Permanent differences  affect only the period in which they occur, they do not give rise to  future taxable or deductible amounts.   There are no deferred tax consequences to be recognized. Permanent Differences Permanent Differences Permanent Differences Permanent Differences
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Chapter 19-18 Zurich Company reports pretax financial income of $70,000 for 2007. The following items  cause taxable income to be different than pretax financial income.  (1) Depreciation on the  tax return is greater than depreciation on the income statement by $16,000. (2)  Rent  collected on the tax return is greater than rent earned on the income statement by $22,000.  (3) Fines for pollution appear as an expense of $11,000 on the income statement. Zurich’s tax rate is 30% for all years, and the company expects to report taxable income in  all future years. There are no deferred taxes at the beginning of 2007. Instructions Prepare the journal entry to record income tax expense, deferred income  taxes, and income taxes payable for 2007. Permanent Differences Permanent Differences Permanent Differences Permanent Differences
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Chapter 19-19 Permanent Differences Permanent Differences Permanent Differences Permanent Differences
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Chapter 19-20 A company must consider presently enacted changes in the tax rate that become  effective for a particular future year(s) when determining the tax rate to apply to  existing temporary differences.
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