CHAPTER 19 Accounting for Income Taxes

Topics

Questions

Brief

Exercises

Problems

Concepts for Analysis

 1.   Reconcile pretax financial income with taxable income.

1, 13

3, 4, 5

2, 3, 4

 2.   Identify temporary and permanent differences.

5, 6

 3.   Determine deferred income taxes and related items—single tax rate.

6, 7, 13

1, 2, 3, 4, 5, 6, 7, 9

5, 7

3, 4, 8, 9

 4.   Classification of deferred taxes.

10, 11, 12

8, 19

3, 6

2, 3, 5

 5.   Determine deferred income taxes and related items— multiple tax rates, expected future income.

16, 17, 18,

1, 2, 6, 7

1, 6, 7

 6.   Determine deferred taxes, multiple rates, expected future losses.

 7.   Carryback and carryforward of NOL.

12, 13, 14

9, 10, 23, 24, 25

 8.   Change in enacted future tax rate.

2, 7

 9.   Tracking temporary differences through reversal.

8, 17

10.   Income statement presentation.

1, 2, 3, 4, 5, 7, 10, 12, 16, 19, 23, 24, 25

1, 2, 3, 5, 7, 8, 9

11.   Conceptual issues—tax allocation.

1, 2, 8, 19

1, 2, 7

12.   Valuation allowance—deferred tax asset.

7, 14

13.   Disclosure and other issues.

Learning Objectives

Exercises

1.     Identify differences between pretax financial income and taxable income.

1, 2, 5

2.     Describe a temporary difference that results in future taxable amounts.

1, 2, 4, 9, 10

1, 2, 3, 4, 5, 7, 8, 11, 12, 13, 16, 17, 18, 19, 20, 21, 22

4, 6, 7

3.     Describe a temporary difference that results in future deductible amounts.

5, 6, 9

4, 5, 7, 8, 11, 12, 14, 15, 17, 18, 19, 20, 21, 22

1, 2, 4, 6, 8, 9

4.     Explain the purpose of a deferred tax asset valuation allowance.

7, 14, 15, 23, 24, 25

5.     Describe the presentation of income tax expense in the income statement.

4, 6, 8

1, 3, 4, 5, 8, 12, 15, 16

1, 2, 3, 4, 5, 7, 8, 9

6.     Describe various temporary and permanent differences.

2, 3, 9

7.     Explain the effect of various tax rates and tax rate changes on deferred income taxes.

13, 16, 17, 18, 21, 23, 24, 25

8.     Apply accounting procedures for a loss carryback and a loss carryforward.

9.     Describe the presentation of deferred income taxes in financial statements.

3, 15

8, 11, 16, 19, 20, 21, 22

3, 5, 6, 8, 9

Item

Description

Level of

Difficulty

Time (minutes)

E19-1

One temporary difference, future taxable amounts, one rate, no beginning deferred taxes.

Simple

15–20

E19-2

Two differences, no beginning deferred taxes, tracked through 2 years.

E19-3

One temporary difference, future taxable amounts, one rate, beginning deferred taxes.

E19-4

Three differences, compute taxable income, entry for taxes.

E19-5

Two temporary differences, one rate, beginning deferred taxes.

E19-6

Identify temporary or permanent differences.

10–15

E19-7

Terminology, relationships, computations, entries.

E19-8

Two temporary differences, one rate, 3 years.

E19-9

Carryback and carryforward of NOL, no valuation account, no temporary differences.

E19-10

Two NOLs, no temporary differences, no valuation account, entries and income statement.

Moderate

20–25

E19-11

Three differences, classify deferred taxes.

E19-12

Two temporary differences, one rate, beginning deferred taxes, compute pretax financial income.

Complex

E19-13

One difference, multiple rates, effect of beginning balance versus no beginning deferred taxes.

E19-14

Deferred tax asset with and without valuation account.

E19-15

Deferred tax asset with previous valuation account.

E19-16

Deferred tax liability, change in tax rate, prepare section of income statement.

E19-17

Two temporary differences, tracked through 3 years, multiple rates.

30–35

E19-18

Three differences, multiple rates, future taxable income.

E19-19

Two differences, one rate, beginning deferred balance, compute pretax financial income.

25–30

E19-20

Two differences, no beginning deferred taxes, multiple rates.

E19-21

Two temporary differences, multiple rates, future taxable income.

E19-22

Two differences, one rate, first year.

E19-23

NOL carryback and carryforward, valuation account versus no valuation account.

E19-24

NOL carryback and carryforward, valuation account needed.

E19-25

P19-1

Three differences, no beginning deferred taxes, multiple rates.

40–45

P19-2

One temporary difference, tracked for 4 years, one permanent difference, change in rate.

50–60

P19-3

Second year of depreciation difference, two differences, single rate, extraordinary item.

P19-4

Permanent and temporary differences, one rate.

P19-5

NOL without valuation account.

P19-6

Two differences, two rates, future income expected.

P19-7

One temporary difference, tracked 3 years, change in rates, income statement presentation.

45–50

P19-8

Two differences, 2 years, compute taxable income and pretax financial income.

40–50

P19-9

Five differences, compute taxable income and deferred taxes, draft income statement.

CA19-1

Objectives and principles for accounting for income taxes.

CA19-2

Basic accounting for temporary differences.

CA19-3

Identify temporary differences and classification criteria.

CA19-4

Accounting and classification of deferred income taxes.

CA19-5

Explain computation of deferred tax liability for multiple tax rates.

CA19-6

Explain future taxable and deductible amounts, how carryback and carryforward affects deferred taxes.

CA19-7

Deferred taxes, income effects.