TU A3512 Ch. 19: Accounting for Income Taxes Concept Qs !. ". !

a#an$ra C%A
1. Explain &a's to $efer ITax () impro*e cash f#o&+ & &h'? Whats go*ernment response,


2. Explain %retax -inancia# Income (%-I) vs. Taxa.#e Income (TI) & ru#es &h' the' $iffer:
3. What is a Temporar' tax $ifference & explain a taxa.#e vs. $e$ucti.#e difference:
/. Pi Co. Rev is $2! & Exps are $"! each #r$ % to %%$ not incl&din' deprec. on e(&ip)ent
*o&'ht %+%+% for $,! -ith ./#r &sef&l life. Pi &ses 0+1 for 20s & 334 for 5ax. 2or each
of the . #rs$ calc&late Pis %-I & TI & prepare "0s for income taxes at a 312 tax rate:
2111 2111 2112 Tota#s

5. Re/do these "0s -ith the sa)e facts except ass&)e that Pi uses 334 for I5 ) 567 for Tax:

8. 6o- -o&ld acco&nts fro) each set of 7Es(89 & 8") a*ove *e reporte$ in the 2111 -5s?
9. When is a 3eferre$ Tax Asset red&ced *# a *a#uation a##o&ance acco&nt?


:. 5tu$' each item of 2 ;riginating Temporar' 3ifferences (T3: %g 1153<re<or$ere$):
I. Taxa.#e T3 (%-I = TI+ resu#ting in 3eferre$ Tax 7ia.i#it' that re*erses in future 'ears:
A+ >e*enue or ?ains that are recogni@e$ on I5 .efore the' are taxa.#e on -1121:
1+ I5 accrua# .ase$ sa#es *s. insta##ment (cash+ .asis for Tax.
2+ I5 sa#es un$er 2<of<comp#etion metho$ *s portion $eferre$ un$er cash .asis for Tax.
3+ I5 in*estment re*enue un$er eAuit' metho$ *s. cost metho$ for Tax.
/+ I5 gain on non<monetar' asset exchange *s. $eferre$ gain for Tax.
4+ 0xpenses or 7osses that are $e$ucte$ on -1121 .efore .eing recogni@e$ on I5:
1+ Acce#erate$ 3eprec. for Tax *s 567 for I5B 2+ 3e$ucti.#e pension fun$ing = 0xpense
3+ %repai$ 0xps: 3e$ucte$ &hen pai$ for Tax *s. &hen use$ for I5 accrua#.
II. 3e$ucti.#e T3 (%-I C TI+ resu#ting in 3eferre$ Tax Asset that re*erses in future 'ears:
A+ >e*enue or ?ains that are taxa.#e on -1121 .efore the' are recogni@e$ on I5:
1+ %repai$ >e*(>entD 5u.scriptionsD etc+: Taxa.#e &hen recei*e$ *s &hen earne$ for I5.
2+ 5a#es ) 7ease.acEs: Taxa.#e imme$iate#' *s $eferre$ for I5.
4+ 0xpenses or 7osses that are recogni@e$ on I5 .efore .eing $e$ucte$ on -1121:
1+ Farrant' ) 4a$ 3e.t 0xpsD estimate$ (matching+ for I5 *s cash pai$ for Tax.
2+ 7itigation ) 3iscontinue$ ;peration 7ossesD accrue$ for I5 *s cash .asis for Tax.
3+ 5tocE option compensation: accrue$ $uring *esting for I5D !%=0% at exercise for Tax
9. What is a %ermanent Tax 3ifference vs. a Temporar' 5ax 3ifference?
11. 5tu$' each item of 2 %ermanent 3ifference t'pes (%g 115/):
I. >e* ) 0xp items inc#u$e$ in I5 %-I .ut ne*er in -1121 TI GI>Cs reason for exc#usionH:
1+ Interest recei*e$ on municipa#(state)#oca# go*+ .on$s Ghe#p state ) #oca# go*ernmentsH.
2+ 0xpenses incurre$ to o.tain muni .on$ interest Gif muni int. not taxe$D exps not $e$.H
3+ 7ife insurance recei*e$ .' Co. on insure$ emp#o'ee $eath G#iEe non<taxe$ inheritanceH.
/+ 7ife insurance premiums pai$ .' Co. Gif 7I re* not taxe$D exps not $e$ucte$H.
5+ -ines ) %ena#ties resu#ting from *io#ation of an' #a& Gno tax .enefit for #a&.reaEersH.
8+ Compensation exp: certain emp#o'ee stocE options or excess (non<merit .ase$+ sa#ar'.
9+ 512 of !ea# ) 0ntertainment expenses Gto re$uce percei*e$ I3<martini #unchJ a.useH
II. 3e$uctions for -1121 TI that are ne*er I5 %-I expenses GI>Cs reason for $e$uctionH:
1+ I2 3ep#etionJ of certain natura# resources in excess of cost Gto promote miningH.
2+ 3e$uction for $i*s (91D :1 or 1112+ recei*e$ .et&een U5 corps Ga*oi$s trip#e taxationH.
11. 4io Co. P2: is $2! each #r$ % to %%$ incl&din': %) $%;! install)ent sale accr&ed in <%
P2:$ *&t for tax: $%2! in %% & $=! in %2> & 2) $"! life ins&rance pre)i&)s paid in %% & %2.
What t'pe of $ifference is the install)ent sale & life ins&rance pre)i&)s$ & calc&late
Taxa.#e Income & prepare "0s re'ardin' inco)e taxes (at 312 rate) for each of the . #ears:
Insta##ment sa#e: Taxa.#e Temporar' $ifference maEing %-I = TI ) a $eferre$ tax #ia..
7ife Insurance %remiums: %ermanent $ifferenceB I5 expense .ut ne*er a TI $e$uction.
(5ee %g 1155+ 2111 2111 2112 Tota#s

12. Explain statutor' & margina# vs effecti*e tax rate> &se the . a*ove #ears a*ove as exa)ple:

13. 0earch :R0 -e*site (www.irs.gov) & find 2111 Corporate (-orm 1121+ Tax
>ate 5ch:

1/. Pi Co. 2% P2:?$2! & 5:?$2%"!> -hat is -orm 1121 tax & margina# vs effecti*e rates?
15. What are 4ios (8%% facts) actua# ./#ear tax "0s &sin' actua# 2111 Corporate Tax >ates?
2111 2111 2112 Tota#s
18. 6o- is IT0xp calc&lated if expected f&t&re rates (@0+state+forei'n) $iffer fro) c&rrent rate?

19. Whats an AK;7B> ho- is it treated for 5axes$ & -hats the :RC purpose for this treat)ent?
1:. Explain genera# ru#e treatment for CD1s vs. the a#ternate treament e#ection allo-a*le:
19. Wh# -o&ld a Co. ever )a!e the e#ection & pass &p imme$iate refun$s fro) the past 2 #rs?

21. Pi Co. has these P2:s(no te)p. or per). differences) & ass&)ed flat tax rates(%gs 1159+:
Lear %-I ) TI >ate -1121 Tax Lear %-I ) TI >ate -1121 Tax
2118 M 51D111 252 M12D511 2119 (M 511D111+ 252 n6a
2119 M 111D111 312 M31D111 2111 M 251D111 /12 ,
211: M 211D111 /12 M:1D111 2111 M 311D111 /22 ,
Record Pis <, tax "0s (no CD1 election)$ deter)ine their 19 I5 Ket 7oss & fill in A?sB:


21. Record Pis <, tax "0$ if the K;7 e#ection is ma$e$ & deter)ine their 19 I5 Ket 7oss:
22. Whats the pro*le) -ith a *a#uation a##o&ance acct for a 3TA (fro) te)p. diffs or C+2s)?

23. 6o- sho&ld a 35E or 351 acco&nt *e classified in the 20?

2/. What is intraperio$ tax a##ocation vs. interperio$ tax allocation?
25. When )&st a %2+.% #r/end Co. fi#e its 2% -1121$ & can it -ait &ntil then to pa# its tax?


28. What is Tax 3epreciation called & -hat are the genera# r&les for )ost deprecia*le assets?

>e*ie& %age 118/. !etho$ ) %roce$ures for >eporting 3eferre$ Income TaxesB )
>e*ie& the Comprehensi*e Interperio$ Tax A##ocation %ro.#em in the Appen$ix.