ACCT 305 Lecture Notes - Lecture 19: Internal Revenue Service, Internal Revenue Code, Deferred Tax

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14 Apr 2020

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Acct 305 chapter 19 notes: pretax accounting -> gaap -> income tax expense (=pretax financial income x tax rate) Tax accounting: taxable income -> irs code (cash basis) -> income tax payable (=taxable income x tax rate) Difference between income tax payable & income tax expense is the temporary difference: deferred tax liability, deferred tax asset. Accounting for income taxes: corporations must file income tax returns following the guidelines developed by the. Internal revenue service (irs): because gaap and tax regulations differ in a number of ways, the amounts reported for the following will differ: Income tax payable (internal revenue code: financial statements, pretax financial income, gaap. Income tax expense: tax return, taxable income, tax code. Differences between financial and tax reporting: pre-tax financial income and taxable income frequently differ due to the differences in. Illustration: chelsea, inc. reported revenues of ,000 and expenses of ,000 in each of its first three years of operations.

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Bandung Corporation began 2014 with a $92,700 balance in the Deferred Tax Liability account. At the end of 2014, the related cumulative temporary difference amounts to $366,700, and it will reverse evenly over the next 2 years. Pretax accounting income for 2014 is $538,100, the tax rate for all years is 40%, and taxable income for 2014 is $403,150. Compute income taxes payable for 2014. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.

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A. If a $150,000 balance in Deferred Tax Liability was computedby use of a 30% rate, the underlying cumulative temporarydifference amounts to $__________.

B. An income statement that reports current tax benefit of$63,000, and deferred tax expense of $19,000 will report totalincome tax _____________ of$________.

C. If a taxable permanent difference originates in 2012, it willcause taxable income for 2012 tobe _________(less than, greater than) pretax financial income for2012.

D. If the income statement shows total income tax expenses of$186,000 and deferred tax expenses of $45,000, the total taxes dueon the tax return for the period are______________.

E. If total tax expense is $225,000 andthe current expense is $155,000, then the deferred tax_____________ (expense, benefit) is $__________.

F. In a period in which a deductible temporary differencereverses, the reversal will cause taxable income to be __________(less than, greater than) pretax financialincome.

G. A decrease in the Deferred Tax Assets account onthe balance sheet is recorded by a _________ (debit,credit) to the Income Tax Expenseaccount.

H. If a corporationâs âIncome tax payableâ on the balance sheettotals $100,000, the company made estimated payments during theyear totaling $40,000, and the tax rate is 40%, taxable incomeequals $________.

I. A valuation account___________ (reduces, increases) the balance reported in thebalance sheet for a deferred tax asset to the amount expected to berealized.

J. Deferred taxes _________ (are,are not) recorded to account for temporary differences.

Johnny Bravo Company began operations in 2015 and has providedthe following information.
1. Pretax financial income for 2015 is $100,000.
2. The tax rate enacted for 2015 and future years is 40%.
3. Differences between the 2015 income statement and tax return arelisted below.
1. Warrantyexpense accrued for financial reporting purposes amounts to $5,000.Warranty deductions per the tax return amount to $2,000.
2. Gross profit onconstruction contracts using the percentage-of-completion methodfor book purposes amounts to $92,000. Gross profit on constructioncontracts for tax purposes amounts to $62,000.
3. Depreciation ofproperty, plant, and equipment for financial reporting purposesamounts to $60,000.
4. Depreciation ofthese assets amounts to $80,000 for the tax return.
5. A $3,500 fine paid forviolation of pollution laws was deducted in computing pretaxfinancial income.
6. Interest revenue earnedon an investment in tax-exempt municipal bonds amounts to$1,400.
4. Taxable income is expected for the next few years.

*Prepare the journal entry to record income tax expense, deferredtaxes, and income taxes payable for 2015. (1-6 above)
*Draft the income tax expense section of the income statement,beginning with

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ACCT 305 Lecture Notes - Lecture 19: Internal Revenue Service, Internal Revenue Code, Deferred Tax

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