intermediate accounting(fifteenth edition) ch19

1、CHAPTER 19Accounting for Income TaxesASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)TopicsQuestionsBriefExercisesExercisesProblemsConcepts for Analysis1.Reconcile pretax financial income with taxable income.1, 131, 2, 3, 4, 5, 12, 18, 20, 211, 2, 3, 4, 82.Identify temporary and permanent differences.3, 4

2、, 54, 5, 6, 72, 3, 43, 4, 53.Determine deferred income taxes and related itemssingle tax rate.6, 7, 131, 2, 3, 4, 5, 6, 7, 91, 3, 4, 5, 7, 8, 12, 14, 15, 19, 213, 4, 8, 924.Classification of deferred taxes.10, 11, 12157, 11, 16, 18, 19, 20, 21, 223, 62, 3, 55.Determine deferred income taxes and rela

3、ted items multiple tax rates, expected future income.102, 13, 16, 17, 18, 20, 221, 2, 6, 71, 6, 76.Determine deferred taxes, multiple rates, expected future losses.107.Carryback and carryforwardof NOL.16, 17, 18, 12, 13, 149, 10, 23, 24, 2558.Change in enacted future tax rate.1411162, 75, 69.Trackin

4、g temporary differences through reversal.8, 172, 710.Income statement presentation.981, 2, 3, 4, 5, 7, 10, 12, 16, 19, 23, 24, 251, 2, 3, 5, 7, 8, 911.Conceptual issuestax allocation.1, 2, 8, 1971, 2, 712.Valuation allowancedeferred tax asset.8, 1977, 14, 15, 23, 24, 2513.Disclosure and other issues

5、.15ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)Learning ObjectivesQuestionsBrief ExercisesExercisesProblemsConcepts for Analysis1.Identify differences between pretax financial income and taxable income.1, 21, 2, 5CA19-12.Describe a temporary difference that results in future taxable amoun

6、ts.3, 41, 2, 4, 9, 101, 2, 3, 4, 5, 7, 8, 11, 12, 13, 16, 17, 18, 19, 20, 21, 221, 3, 4, 6,7, 8, 93.Describe a temporary difference that results in future deductible amounts.55, 6, 94, 5, 7, 8, 11, 12, 14, 15, 17, 18, 19, 20, 21, 221, 2, 4, 6, 8, 94.Explain the purpose of a deferred tax asset valuat

7、ion allowance.6, 7, 8, 97, 147, 14, 15, 23, 24, 255.Describe the presentation of income tax expense in the income statement.104, 6, 81, 3, 4, 5, 8, 12, 15, 161, 2, 3, 4, 5, 7, 8, 96.Describe various temporary and permanent differences.11, 12, 13, 144, 6, 72, 3, 9CA19-2, CA19-37.Explain the effect of

8、 various tax rates and tax rate changes on deferred income taxes.14, 151113, 16, 17, 18, 21, 23, 24, 255, 7CA19-4, CA19-58.Apply accounting procedures for a loss carryback and a loss carryforward.16, 17, 1812, 13, 149, 10, 23, 24, 255CA19-69.Describe the presentation of deferred income taxes in fina

9、ncial statements.193, 15 8, 11, 16, 19, 20, 21, 223, 5, 6, 8, 9C19-7ASSIGNMENT CHARACTERISTICS TABLEItemDescriptionLevel ofDifficultyTime(minutes)E19-1One temporary difference, future taxable amounts, one rate, no beginning deferred taxes.Simple1520E19-2Two differences, no beginning deferred taxes,

10、tracked through 2 years.Simple1520E19-3One temporary difference, future taxable amounts, one rate, beginning deferred taxes.Simple1520E19-4Three differences, compute taxable income, entry for taxes.Simple1520E19-5Two temporary differences, one rate, beginning deferred taxes.Simple1520E19-6Identify t

11、emporary or permanent differences.Simple1015E19-7Terminology, relationships, computations, entries.Simple1015E19-8Two temporary differences, one rate, 3 years.Simple1015E19-9Carryback and carryforward of NOL, no valuation account, no temporary differences.Simple1520E19-10Two NOLs, no temporary diffe

12、rences, no valuation account, entries and income statement.Moderate2025E19-11Three differences, classify deferred taxes.Simple1015E19-12Two temporary differences, one rate, beginning deferred taxes, compute pretax financial income.Complex2025E19-13One difference, multiple rates, effect of beginning

13、balance versus no beginning deferred taxes.Simple2025E19-14Deferred tax asset with and without valuation account.Moderate2025E19-15Deferred tax asset with previous valuation account.Complex2025E19-16Deferred tax liability, change in tax rate, prepare section of income statement.Complex1520E19-17Two

14、temporary differences, tracked through 3 years, multiple rates.Moderate3035E19-18Three differences, multiple rates, future taxable income.Moderate2025E19-19Two differences, one rate, beginning deferred balance, compute pretax financial income.Complex2530E19-20Two differences, no beginning deferred t

15、axes, multiple rates.Moderate1520E19-21Two temporary differences, multiple rates, future taxable income.Moderate2025E19-22Two differences, one rate, first year.Simple1520E19-23NOL carryback and carryforward, valuation account versus no valuation account.Complex3035E19-24NOL carryback and carryforwar

16、d, valuation account needed.Complex3035E19-25NOL carryback and carryforward, valuation account needed.Moderate1520ASSIGNMENT CHARACTERISTICS TABLE (Continued)ItemDescriptionLevel ofDifficultyTime(minutes)P19-1Three differences, no beginning deferred taxes, multiple rates.Complex4045P19-2One temporar

17、y difference, tracked for 4 years, one permanent difference, change in rate.Complex5060P19-3Second year of depreciation difference, two differences, single rate, extraordinary item.Complex4045P19-4Permanent and temporary differences, one rate.Moderate2025P19-5NOL without valuation account.Simple2025

18、P19-6Two differences, two rates, future income expected.Moderate2025P19-7One temporary difference, tracked 3 years, change in rates, income statement presentation.Complex4550P19-8Two differences, 2 years, compute taxable income and pretax financial income.Complex4050P19-9Five differences, compute ta

19、xable income and deferred taxes, draft income statement.Complex4050CA19-1Objectives and principles for accounting for income taxes.Simple1520CA19-2Basic accounting for temporary differences.Moderate2025CA19-3Identify temporary differences and classification criteria.Complex2025CA19-4Accounting and c

20、lassification of deferred income taxes.Moderate2025CA19-5Explain computation of deferred tax liability for multiple tax rates.Complex2025CA19-6Explain future taxable and deductible amounts, how carryback and carryforward affects deferred taxes.Complex2025CA19-7Deferred taxes, income effects.Moderate

21、2025SOLUTIONS TO CODIFICATION EXERCISESCE19-1Master Glossary(a)The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduc

22、ed by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.(b)The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing

23、 authority.(c)The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.(d)The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of

24、the enacted tax law.CE19-2According to FASB ASC 740-10-30-2 (Income TaxesInitial Measurement):The following basic requirements are applied to the measurement of current and deferred income taxes at the date of the financial statements:(a)The measurement of current and deferred tax liabilities and as

25、sets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated.(b)The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.CE19-3Ac

26、cording to FASB ASC 740-10-S99-2 (Income TaxesSEC Materials):Yes. In such an event, a note must (1) disclose the aggregate dollar and per share effects of the tax holiday and (2) briefly describe the factual circumstances including the date on which the special tax status will terminate.CE19-4Accord

27、ing to FASB ASC 740-10-25-6 (Income TaxesRecognition):An entity shall initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The term more likely than not means a like

28、lihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. For example, if an entity determines that it is certain that the entire cost of an acquired asset is fully deductible, the more-likely-than-not reco

29、gnition threshold has been met. The more-likely-than-not recognition threshold is a positive assertion that an entity believes it is entitled to the economic benefits associated with a tax position. The determination of whether or not a tax position has met the more-likely-than-not recognition thres

30、hold shall consider the facts, circumstances, and information available at the reporting date. The level of evidence that is necessary and appropriate to support an entitys assessment of the technical merits of a tax position is a matter of judgment that depends on all available information.ANSWERS

31、TO QUESTIONS1.Pretax financial income is reported on the income statement and is often referred to as income before income taxes. Taxable income is reported on the tax return and is the amount upon which a companys income taxes payable are computed.2.One objective of accounting for income taxes is t

32、o recognize the amount of taxes payable or refundable for the current year. A second objective is to recognize deferred tax liabilities and assets for the future tax consequences of events already recognized in the financial statements or tax returns.3.A permanent difference is a difference between

33、taxable income and pretax financial income that, under existing applicable tax laws and regulations, will not be offset by corresponding differences or “turn around” in other periods. Therefore, a permanent difference is caused by an item that: (1) is included in pretax financial income but never in

34、 taxable income, or (2) is included in taxable income but never in pretax financial income.Examples of permanent differences are: (1) interest received on municipal obligations (such interest is included in pretax financial income but is not included in taxable income), (2) premiums paid on officers

35、 life insurance policies in which the company is the beneficiary (such premiums are not allowable expenses for determining taxable income but are expenses for determining pretax financial income), and (3) fines and expenses resulting from a violation of law. Item (3), like item (2), is an expense wh

36、ich is not deductible for tax purposes.4.A temporary difference is a 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 when the reported amount of

37、the asset is recovered or when the reported amount of the liability is settled. The temporary differences discussed in this chapter all result from differences between taxable income and pretax financial income which will reverse and result in taxable or deductible amounts in future periods.Examples

38、 of temporary differences are: (1) Gross profit or gain on installment sales reported for financial reporting purposes at the date of sale and reported in tax returns when later collected. (2) Depreciation for financial reporting purposes is less than that deducted in tax returns in early years of a

39、ssets lives because of using an accelerated depreciation method for tax purposes. (3) Rent and royalties taxed when collected, but deferred for financial reporting purposes and recognized as when the performance obligation is satisfied in later periods. (4) Unrealized gains or losses recognized in i

40、ncome for financial reporting purposes but deferred for tax purposes.5.An originating temporary difference is the initial difference between the book basis and the tax basis of an asset or liability. A reversing difference occurs when a temporary difference that originated in prior periods is elimin

41、ated and the related tax effect is removed from the tax account.6.Book basis of assets$900,000Tax basis of assets 700,000Future taxable amounts 200,000Tax rate 34%Deferred tax liability (end of 2015)$ 68,000Questions Chapter 19 (Continued)7.Book basis of asset$90,000Deferred tax liability (end of 20

42、15)$ 30,600Tax basis of asset   0   Deferred tax liability (beginning of 2015) 68,000Future taxable amounts 90,000Deferred tax benefit for 2015(37,400)Tax rateX 34%Income taxes payable for 2015 230,000Deferred tax liability (end of 2015)$30,600Income tax expense for 201

43、5$192,6008.A future taxable amount will increase taxable income relative to pretax financial income in future periods due to temporary differences existing at the balance sheet date. A future deductible amount will decrease taxable income relative to pretax financial income in future periods due to

44、existing temporary differences.A deferred tax asset is recognized for all deductible temporary differences. However, a deferred tax asset should be reduced by a valuation account if, based on all available evidence, it is more likely than not that some portion or all of the deferred tax asset will n

45、ot be realized. More likely than not means a level of likelihood that is slightly more than 50%.9.Taxable income$100,000Future taxable amounts$70,000Tax rateX 40%Tax rateX 40%Income taxes payable$ 40,000Deferred tax liability (end of 2015)$28,000Deferred tax liability (end of 2015)$ 28,000Current ta

46、x expense$40,000Deferred tax liability (beginning of 2015) ( 0 )Deferred tax expense (28,000)Deferred tax expense for 2015$ 28,000Income tax expense for 2015$68,00010.Deferred tax accounts are reported on the balance sheet as assets and liabilities. They should be classified in a net current and a n

47、et noncurrent amount. An individual deferred tax liability or asset is classified as current or noncurrent based on the classification of the related asset or liability for financial reporting purposes. A deferred tax asset or liability is considered to be related to an asset or liability if reducti

48、on of the asset or liability will cause the temporary difference to reverse or turn around. A deferred tax liability or asset that is not related to an asset or liability for financial reporting purposes, including deferred tax assets related to loss carryforwards, shall be classified according to t

49、he expected reversal date of the temporary difference.11.The balances in the deferred tax accounts should be analyzed and classified on the balance sheet in two categories: one for the net current amount, and one for the net noncurrent amount. This procedure is summarized as indicated below.(1)Class

50、ify the amounts as current or noncurrent. If an amount is related to a specific asset or liability, it should be classified in the same manner as the related asset or liability. If not so related, it should be classified on the basis of the expected reversal date.(2)Determine the net current amount

51、by summing the various deferred tax assets and liabilities classified as current. If the net result is an asset, report on the balance sheet as a current asset; if it is a liability, report as a current liability.(3)Determine the net noncurrent amount by summing the various deferred tax assets and l

52、iabilities classified as noncurrent. If the net result is an asset, report on the balance sheet as a noncurrent asset (“other assets” section); if it is a liability, report as a long-term liability.12.A deferred tax asset or liability is considered to be related to an asset or liability if reduction

53、 of the asset or liability will cause the temporary difference to reverse or turn around.Questions Chapter 19 (Continued)13.Pretax financial income$550,000Interest income on municipal bonds (70,000)Hazardous waste fine25,000Depreciation ($60,000 $45,000) 15,000Taxable income520,000Tax rateX30%Income

54、 taxes payable$156,00014.$200,000(2017 taxable amount)10%(30% 20%)$ 20,000Decrease in deferred tax liability at the end of 2014Deferred Tax Liability20,000Income Tax Expense20,00015.Some of the reasons for requiring income tax component disclosures are:(a)Assessment of the quality of earnings. Many

55、investors seeking to assess the quality of a companys earnings are interested in the reconciliation of pretax financial income to taxable income. Earnings that are enhanced by a favorable tax effect should be examined carefully, particularly if the tax effect is nonrecurring.(b)Better prediction of future cash flows. Examination of the deferred portion of income tax expense provides information as to whether taxes payable are likely to be higher or lower in the future.16.The loss carryback provision permits a company to carry a net operating loss back two years and receive refu