AFM391 Chapter Notes - Chapter 16: Deferred Tax, Basis Of Accounting, Deferral

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lemonbeetle804

16 Dec 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM391

Professor

Sasan Saiy

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Document Summary

Accounting income: the amount of income (before subtracting income tax) recogniz ed for financial reporting purposes. Taxable income: the amount of income recognized for tax purposes used to compute taxes payable. Methods of accounting for income taxes: there are three possible ways to account for income taxes: Taxes payable method: a method that records an amount for income tax expense equal to the tax payments for the current period. Deferral method: focuses on obtaining the income statement value for income tax expense that best matches the amount of income recognized for the year. Accrual method: focuses on obtaining the balance sheet val ue for the income tax liability (or asset) that best reflects the assets and liabilities recognized on the balance sheet. Resul ts in the same entry as the deferral method, except when tax rates change, in which cas e any deferred taxes already on the balance sheet will also be revalued.

Related Questions

The following information is available for Windsor Corporation for 2016 (its first year of operations).

1,		Excess of tax depreciation over book depreciation, $43,800. This $43,800 difference will reverse equally over the years 2017â2020.
2.		Deferral, for book purposes, of $18,100 of rent received in advance. The rent will be recognized in 2017.
3.		Pretax financial income, $302,100.
4.		Tax rate for all years, 30%.

a) Compute taxable income for 2016.

Taxable Income $____

b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.

c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $309,200.

blushtermite843

17. Sales for the Merry Company totaled $800,000 for the year,COGS is $150,000, G&A Expenses of $200,000 includesdepreciation of $30,000, interest expense of $75,000, and patentamortization of $20,000. The Company had a gain on sale ofInvestments in the amount of $25,000 and income tax expense totaled$100,000 and income tax payable totaled $40,000 for the sameperiod.

1) The Merry Company net income is:

2) Merry Company EBIDA is:

18. Briefly explain the concept of Deferred Taxes. What is thedifference between the Deferred Tax Asset Account and the DeferredTax Liability Account? Prepare the journal entry to record MerryCompany deferred taxes for the period.

Norman, Inc. appropriately uses the asset-liability method to record deferred income taxes. Norman reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year.

In addition, Norman received rent revenues in advance this year. These revenues are included in this year's taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability.

Initial Post
How would Norman account for the temporary differences?

ivorygrasshopper924

AFM391 Chapter Notes - Chapter 16: Deferred Tax, Basis Of Accounting, Deferral

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