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Results in . . . Results in . . .
Usually. . .
Financial statement IRS income taxes
income tax expense. payable.
× Tax rate ? ? ?
Income taxes ? ? ?
Temporary Differences
Often, the difference between pretax
accounting income and taxable income
results from items entering the income
computations at different times.
Temporary Differences
Financial Income > Taxable Income Financial Income < Taxable Income
General Journal
Description Debit Credit
Income tax expense 96,000
Income tax payable 64,000
Deferred tax liability 32,000
General Journal
Description Debit Credit
Income tax expense 64,000
Deferred tax liability 22,400
Income tax payable 86,400
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc.
Slide
16-18
Aftertax
Income posting this entry,165,000
expense the Deferred Tax
Asset account
Deferred will have a balance of $45,000.
tax asset 15,000
Income tax payable
Deferred Tax Asset 150,000
2001 45,000
Balance 45,000
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc.
Slide
16-26
At the Income
end tax expense
of 2004, the
Deferred tax asset
165,000
balance in the15,000
Deferred
Taxtax
Income Asset
payable would be zero. 150,000
Deferred Tax Asset
2001 45,000 15,000 2002
15,000 2003
15,000 2004
Balance -
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc.
Slide
16-30
Valuation Allowance
Non-Temporary Differences
Non-Temporary Differences
Also called
permanent
differences.
Disregarded when
determining both taxes
payable and the
deferred tax asset or
liability.
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc.
Slide
16-34
Carryback Carryforward
Period Period
-2 -1 +1 +2 +3 +4 +5 . . . +20
Current
Year
General Journal
Description Debit Credit
Income tax refund receivable 9,000
Benefits of NOL carryback 9,000
Garson, Inc.
Partial Income Statement
For the Year Ended December 31, 2003
Operating loss before income taxes $ (85,000)
Benefit of NOL carryback 9,000
Net loss $ (76,000)
General Journal
Description Debit Credit
Deferred tax asset 17,000
Benefits of NOL carryforward 17,000
Additional Disclosures
Current portion of tax expense (benefit)
Deferred portion of tax expense (benefit),
with separate disclosure for
Portion that does not include the effect of the
following separately disclosed amounts.
Operating loss carryforwards.
Adjustments due to changes in tax laws or
rates.
Adjustments to the beginning-of-the-year
valuation allowance due to revised estimates.
Investment tax credits.
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc.
Slide
16-45
Extraordinary items.
End of Chapter 16