Notecards I made from Wiley's 2012 CPA Exam Review
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| When does a temporary difference in tax amounts occur? | 1. revenue/expense item is included in financial income and taxable income
2. And recognized in one period for financial purposes and another for income tax purposes
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| How is a temporary tax difference accounted for? | Record a deferred tax asset or liability, when difference reverses remove deferred tax amount, show increase/decrease in income tax expense
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| When does a permanent difference in tax amounts occur? | revenue/expense item is included in financial income or taxable income, but never both
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| How is a permanent tax difference accounted for? | No deferred taxes are recognized.
Tax exempt income/deduction subtracted/added to book income to get tax reconciliation
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| What are some examples of causes for temporary tax differences? | estimated warranty liability, unearned rent revenue, plant assets and accumulated depreciation, donated asset, involuntary conversion of assets, goodwill
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| What are some examples of causes for permanent tax differences? | state/municipal bond interest income, life insurance premium expense when corporation is beneficiary, federal income tax expense, payment of penalty/fine, dividend received deduction
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| Define current tax expense or benefit. | amount of income taxes paid/payable or refundable for a year determined with provisions of tax law used on taxable income or excess of deductions over revenues for the year
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| Define deferred tax expense or benefit. | the change during the year in an entities deferred tax liabilities or assets
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| Where should the deferred tax asset/liability be reported in the financial statements? at what amount? | 1. in the current section
2. amounts that will be paid/recovered based on tax laws and rates in place at the date of payment/recovery
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| How do future taxable amounts affect taxable income in respect to book income? deductible amounts? | 1. cause taxable income to be greater than book income in future periods (deferred tax liability)
2. cause taxable income to be less than book income in future periods (deferred tax asset)
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| What is the simple equation for determining income tax expense? | Income tax= income tax payable from the tax return +/- change in deferred taxes (net)
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| If the tax rate is changed, how does this affect the deferred liability/asset? | Done during normal adjustment at end of year when journal entry amount is decided by looking at desired balance in deferred tax liability/asset and debit/credit it by income tax deferred
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| If on a contract, the book income is greater than the tax income, how is it treated in the tax reconciliation? Depreciation, book > tax? estimated expense liability, book > tax? Rent revenue, book > tax? | 1. Subtract the amount
2. add the amount
3. add the amount
4. subtract the amount
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| When would a deferred tax asset be needed to be reduced by a valuation allowance? | Based on all available evidence theres >50% chance that some portion or all of the deferred tax asset will not be used
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| When looking at an entities investment in another company, how are deferred taxes calculated? | only tax distributed income (dividend), full amt shown on books Take net income-dividend, find undistributed amount, multiply by % entity controls, determine if going to sell (xCapital gain %) or keep (xNormal tax %- allowed dividends received deduction)
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| What is the dividends received deduction percentages at different levels of ownership interest? | 1. own 0- <20%: Deduction is 70%
2. own 20- <80%: Deduction is 80%
3. own 80-100%: Deduction is 100%
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| At what percentage of ownership is a temporary difference present on deferred income tax of undistributed earnings? | <20% to <80%
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| What are the two components to income tax expense? | amount currently payable (current portion) and tax effects of temporary differences (deferred portion)
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| If a company reports deferred tax assets and deferred tax liabilities in multiple years, how should deferred income tax expense/benefit be calculated? | Sum of the net changes of deferred tax assets and deferred tax liabilities
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| In general define what happens in a loss carryback and carryforward. | operating losses can offset income be being carriedback to the previous two periods resulting in a refund, If losses still remain, they can be carriedforwards 20 years and offset income that arises. Companies may elect to only carryforwards.
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| When are loss carrybacks recognized? loss carryforwards? | 1. year of the loss
2. year of the loss
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| How is tax on an extraordinary gain shown on the financial statements? | take tax from income from continuing operations, show this number. Add the extraordinary gain (net of tax), left with net income.
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| How is tax on other comprehensive income shown on the financial statements? | either add each item net of tax effects for each, or show each item before tax effects and add one line with the amount for the total tax effect and show details of this number in the notes
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| What is the process to report deferred tax on the balance sheet? | 1. determine current & non current deferred assets/liabilities (mostly on utilization date, but could be tied to a specific asset/liability)
2. net current deferred assets/liabilities & noncurrent deferred assets/liabilities (deduct allowance acct's 1st)
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| How is income tax computed on all sections of the financial statement minus continuing operations? (i.e. discontinued operations, extraordinary items) | find taxable income amount and compare it to only continuing operations taxable amount. Multiple items are attributed tax proportionately
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| How is a sole proprietorship taxed? | through the owner's own income tax return, the company itself isnt taxed
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| Under IFRS, when are deferred tax liabilities recognized? deferred tax assets? | identify all temporary differences and classify as giving rise to deferred liability or deferred asset
1. all liabilities are reported
2. only if >50% chance asset realized is it reported
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| Under IFRS, can deferred tax liabilities and assets be current? | no
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| Under IFRS, when are current tax liabilities and assets netted against each other? deferred tax liabilities and assets? | 1. only if they relate to the same taxing authority
2. only if they relate to the same taxing authority
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