19-1 Volume 2. 19-2 C H A P T E R 19 ACCOUNTING FOR INCOME TAXES Intermediate Accounting IFRS...

19-1

Volume 2Volume 2

19-2

C H A P T E R C H A P T E R 1919

ACCOUNTING FOR INCOME TAXESACCOUNTING FOR INCOME TAXES

Intermediate AccountingIFRS Edition

Kieso, Weygandt, and Warfield

19-3

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

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

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

4. Explain the non-recognition of a deferred tax asset.

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

6. Describe various temporary and permanent differences.

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

income taxes.

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

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

10. Indicate the basic principles of the asset-liability method.

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

19-4

Fundamentals of Accounting for Income Taxes

Future taxable amounts and deferred taxes

Future deductible amounts and deferred taxes

Income statement presentation

Specific differences

Rate considerations

Accounting for Net Operating Losses

Financial Statement Presentation

Review of Asset-Liability Method

Loss carryback

Loss carryforward

Loss carryback example

Loss carryforward example

Statement of financial position

Income statement

Tex reconciliation

Accounting for Income TaxesAccounting for Income TaxesAccounting for Income TaxesAccounting for Income Taxes

19-5

Corporations must file income tax returns following the

guidelines developed by the appropriate taxing authority,

thus they:

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

Fundamentals of Accounting for Income TaxesFundamentals of Accounting for Income TaxesFundamentals of Accounting for Income TaxesFundamentals of Accounting for Income Taxes

calculate taxes payable based upon tax regulations,

calculate income tax expense based upon IFRS.

Amount reported as tax expense will often differ from the

amount of taxes payable to the taxing authority.

19-6

Tax Code

Exchanges

Investors and Creditors

Financial Statements

Pretax Financial Income

IFRS

Income Tax Expense

Taxable Income

Income Tax Payable

Tax Return

vs.



Illustration 19-1

Tax Tax AuthorityAuthority

19-7

Illustration: Chelsea, Inc. reported revenues of $130,000 and

expenses of $60,000 in each of its first three years of operations.

For tax purposes, Chelsea reported the same expenses to the tax

authority in each of the years. Chelsea reported taxable revenues

of $100,000 in 2011, $150,000 in 2012, and $140,000 in 2013.

What is the effect on the accounts of reporting different amounts of

revenue for IFRS versus tax?



19-8

Revenues

Expenses

Pretax financial income

Income tax expense (40%)

$130,000

60,000

$70,000

$28,000

$130,000

2012

60,000

$70,000

$28,000

$130,000

2013

60,000

$70,000

$28,000

$390,000

Total

180,000

$210,000

$84,000

IFRS ReportingIFRS ReportingIFRS ReportingIFRS Reporting

Revenues

Expenses

Pretax financial income

Income tax payable (40%)

$100,000

2011

60,000

$40,000

$16,000

$150,000

2012

60,000

$90,000

$36,000

$140,000

2013

60,000

$80,000

$32,000

$390,000

Total

180,000

$210,000

$84,000

Tax ReportingTax Reporting

2011


Book vs. Tax DifferenceBook vs. Tax DifferenceBook vs. Tax DifferenceBook vs. Tax Difference

Illustration 19-2

Illustration 19-3

19-9

Income tax expense (IFRS)

Income tax payable (tax authority)

Difference

$28,000

16,000

$12,000

$28,000

2012

36,000

$(8,000)

$28,000

2013

32,000

$(4,000)

$84,000

Total

84,000

$0

ComparisonComparisonComparisonComparison 2011

Are the differences accounted for in the financial statements?

Year Reporting Requirement

2011

2012

2013

Deferred tax liability account increased to $12,000

Deferred tax liability account reduced by $8,000

Deferred tax liability account reduced by $4,000

YesYes


Book vs. Tax DifferenceBook vs. Tax DifferenceBook vs. Tax DifferenceBook vs. Tax Difference

Illustration 19-4

19-10

Statement of Financial Position

Assets:

Liabilities:

Equity: Income tax expense Income tax expense 28,00028,000

Income Statement

Revenues:

Expenses:

Net income (loss)

2011 2011

Deferred taxes Deferred taxes 12,00012,000

Where does the “deferred tax liability” get reported in the financial statements?

Income tax payableIncome tax payable 16,00016,000


Financial ReportingFinancial ReportingFinancial ReportingFinancial Reporting

19-11

A Temporary Difference is the 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.

Future Taxable Amounts Future Deductible AmountsDeferred Tax Liability represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year.

Deferred Tax Asset represents the increase in taxes refundable (or saved) in future years as a result of deductible temporary differences existing at the end of the current year.

Illustration 19-22: Examples of Temporary Differences

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

Temporary DifferencesTemporary DifferencesTemporary DifferencesTemporary Differences

19-12 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred TaxesFuture Taxable Amounts and Deferred TaxesFuture Taxable Amounts and Deferred TaxesFuture Taxable Amounts and Deferred Taxes

Illustration: In Chelsea’s situation, the only difference between the

book basis and tax basis of the assets and liabilities relates to

accounts receivable that arose from revenue recognized for book

purposes. Chelsea reports accounts receivable at $30,000 in the

December 31, 2011, IFRS-basis statement of financial position.

However, the receivables have a zero tax basis.

Illustration 19-5



Chelsea assumes that it will collect the accounts receivable and report

the $30,000 collection as taxable revenues in future tax returns.

Chelsea does this by recording a deferred tax liability.

Illustration 19-6

Illustration: Reversal of Temporary Difference, Chelsea Inc.



Represents the increase in taxes payable in future years as a result

of taxable temporary differences existing at the end of the current

year.

Deferred Tax Liability

Income tax expense (IFRS)

Income tax payable (tax authority)

Difference

$28,000

16,000

$12,000

$28,000

2011

36,000

$(8,000)

$28,000

2012

32,000

$(4,000)

$84,000

Total

84,000

$0

2010

Illustration 19-4



Illustration: Because it is the first year of operations for Chelsea,

there is no deferred tax liability at the beginning of the year.

Chelsea computes the income tax expense for 2011 as follows:


Illustration 19-9



Illustration: Chelsea makes the following entry at the end of 2011

to record income taxes.


Income Tax Expense 28,000

Income Tax Payable

16,000


12,000



Illustration: Computation of Income Tax Expense for 2012.


Illustration 19-10



Illustration: Chelsea makes the following entry at the end of 2012

to record income taxes.



Deferred Tax Liability 8,000

Income Tax Payable

36,000

Illustration 19-11

19-19

E19-1: Starfleet Corporation has one temporary difference at the

end of 2010 that will reverse and cause taxable amounts of $55,000

in 2011, $60,000 in 2012, and $75,000 in 2013. Starfleet’s pretax

financial income for 2010 is $400,000, and the tax rate is 30% for all

years. There are no deferred taxes at the beginning of 2010.

Instructions

a) Compute taxable income and income taxes payable for 2010.

b) Prepare the journal entry to record income tax expense,

deferred income taxes, and income taxes payable for 2010.

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



Ex. 19-1: Current Yr.

INCOME: 2010 2011 2012 2013

Financial income (GAAP) 400,000

Temporary Diff. (190,000) 55,000 60,000 75,000

Taxable income (IRS) 210,000 55,000 60,000 75,000

Tax rate 30% 30% 30% 30%

Income tax 63,000 16,500 18,000 22,500

b. Income tax expense (plug) 120,000

Income tax payable 63,000

Deferred tax liability 57,000

a.a.

a.a.


19-21

Future Deductible Amounts and Deferred TaxesFuture Deductible Amounts and Deferred TaxesFuture Deductible Amounts and Deferred TaxesFuture Deductible Amounts and Deferred Taxes

Illustration: During 2011, Cunningham Inc. estimated its warranty

costs related to the sale of microwave ovens to be $500,000, paid

evenly over the next two years. For book purposes, in 2011

Cunningham reported warranty expense and a related estimated

liability for warranties of $500,000 in its financial statements. For

tax purposes, the warranty tax deduction is not allowed until

paid.

Illustration 19-12

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

19-22

When Cunningham pays the warranty liability, it reports an expense for tax

purposes. Cunningham reports this future tax benefit in the December 31,

2010, statement of financial position as a deferred tax asset.

Illustration 19-13

Illustration: Reversal of Temporary Difference, Cunningham Inc.



19-23

Represents the increase in taxes refundable (or saved) in future

years as a result of deductible temporary differences existing at

the end of the current year.

Deferred Tax Asset



19-24

Illustration: Hunt Co. accrues a loss and a related liability of

$50,000 in 2011 for financial reporting purposes because of pending

litigation. Hunt cannot deduct this amount for tax purposes until the

period it pays the liability, expected in 2012.

Deferred Tax Asset


Illustration 19-14


19-25

Illustration: Assuming that 2011 is Hunt’s first year of operations,

and income tax payable is $100,000, Hunt computes its income tax

expense as follows.

Deferred Tax Asset


Illustration 19-16


19-26

Illustration: Hunt makes the following entry at the end of 2011 to

record income taxes.

Deferred Tax Asset


Deferred Tax Asset 20,000

Income Tax Payable

100,000



19-27

Illustration: Computation of Income Tax Expense for 2012.

Deferred Tax Asset

Illustration 19-17



19-28

Illustration: Hunt makes the following entry at the end of 2012 to

record income taxes.

Deferred Tax Asset


Deferred Tax Asset

20,000

Income Tax Payable

140,000



Illustration 19-18

19-29

Illustration: Columbia Corporation has one temporary difference at

the end of 2010 that will reverse and cause deductible amounts of

$50,000 in 2011, $65,000 in 2012, and $40,000 in 2013. Columbia’s

pretax financial income for 2010 is $200,000 and the tax rate is 34%

for all years. There are no deferred taxes at the beginning of 2010.

Columbia expects to be profitable in the future.

Instructions

a) Compute taxable income and income taxes payable for 2010.

b) Prepare the journal entry to record income tax expense,

deferred income taxes, and income taxes payable for 2010.



19-30

Illustration Current Yr.

INCOME: 2010 2011 2012 2013


Temporary Diff. 155,000 (50,000) (65,000) (40,000)

Taxable income (IRS) 355,000 (50,000) (65,000) (40,000)

Tax rate 34% 34% 34% 34%

Income tax 120,700 (17,000) (22,100) (13,600)

b. Income tax expense 68,000

Deferred tax asset 52,700



a.a.

a.a.


19-31

Deferred Tax Asset (Non-Recognition)

A company should reduce a deferred tax asset if it is probable that

it will not realize some portion or all of the deferred tax asset.

“Probable” means a level of likelihood of at least slightly more

than 50 percent.

LO 4 Explain the non-recognition of a deferred tax asset.


19-32

E19-14: Callaway Corp. has a deferred tax asset balance of

$150,000 at the end of 2010 due to a single cumulative temporary

difference of $375,000. At the end of 2011 this same temporary

difference has increased to a cumulative amount of $500,000.

Taxable income for 2011 is $850,000. The tax rate is 40% for all

years. No valuation account is in existence at the end of 2010.

Instructions

Assuming that it is probable that $30,000 of the deferred tax asset

will not be realized, prepare the journal entries required for 2011.



19-33

E19-14: Current Yr.INCOME: 2009 2010 2011


Temporary difference 375,000 125,000 (500,000)

Taxable income (IRS) 375,000 850,000 (500,000) -

Tax rate 40% 40% 40% 40%

Income tax 150,000 340,000 (200,000) -

Income tax expense 290,000







19-34

Income tax

payable or

refundable

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

Income Statement PresentationIncome Statement PresentationIncome Statement PresentationIncome Statement Presentation

Change in

deferred income

tax

Income tax

expense or

benefit

++-- ==

In the income statement or in the notes to the financial

statements, a company should disclose the significant

components of income tax expense attributable to continuing

operations.

Formula to Compute Income Tax Expense

Illustration 19-20

19-35 LO 5 Describe the presentation of income tax expense in the income statement.

Income Statement PresentationIncome Statement PresentationIncome Statement PresentationIncome Statement Presentation

Given the previous information related to Chelsea Inc.,

Chelsea reports its income statement as follows.

Illustration 19-21

19-36

Taxable temporary differences - Deferred tax liability

Deductible temporary differences - Deferred tax Asset

Temporary Differences

Specific DifferencesSpecific DifferencesSpecific DifferencesSpecific Differences

Text Illustration 19-22:Text Illustration 19-22:

Examples of Temporary DifferencesExamples of Temporary Differences

LO 6 Describe various temporary and permanent differences.

19-37

Enter into pretax financial income but never into taxable

income or

Enter into taxable income but never into pretax financial

income.

Affect only the period in which they occur.

Do not give rise to future taxable or deductible amounts.

Text Illustration 19-24:Text Illustration 19-24: Examples of Permanent Differences Examples of Permanent Differences



Permanent Differences

19-38

Do the following generate: Future Deductible Amount = Deferred Tax Asset Future Taxable Amount = Deferred Tax Liability Permanent Difference

1. An accelerated depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes.

Future Future Taxable Taxable AmountAmount

2. A landlord collects some rents in advance. Rents received are taxable in the period when they are received.

Future Future Deductible Deductible

AmountAmount

3. Expenses are incurred in obtaining tax-exempt income. Permanent Permanent DifferenceDifference

4. Costs of guarantees and warranties are estimated and accrued for financial reporting purposes.


AmountAmount



E19-6E19-6

19-39

5. Sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes.

Future Future Taxable Taxable AmountAmount

6. Interest is received on an investment in tax-exempt governmental obligations.


AmountAmount

7. Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled.

Permanent Permanent DifferenceDifference



E19-6E19-6

Do the following generate: Future Deductible Amount = Deferred Tax Asset Future Taxable Amount = Deferred Tax Liability Permanent Difference

19-40

Permanent DifferencesPermanent DifferencesPermanent DifferencesPermanent Differences


E19-4: Havaci Company reports pretax financial income of €80,000 for 2010. The following items cause taxable income to be different than pretax financial income.

1. Depreciation on the tax return is greater than depreciation on the income statement by €16,000.

2. Rent collected on the tax return is greater than rent earned on the income statement by €27,000.

3. Fines for pollution appear as an expense of €11,000 on the income statement.

Havaci’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2010.

19-41

E19-4: Current Yr. Deferred Deferred

INCOME: 2010 Asset Liability

Financial income (GAAP) € 80,000

Excess tax depreciation (16,000) € 16,000

Excess rent collected 27,000 (€ 27,000)

Fines (permanent) 11,000

Taxable income (IRS) 102,000 (27,000) 16,000 -

Tax rate 30% 30% 30%

Income tax € 30,600 (€ 8,100) € 4,800 -



Deferred tax liability 4,800


Permanent DifferencesPermanent DifferencesPermanent DifferencesPermanent Differences


19-42

A company must consider presently enacted changes in the tax

rate that become effective for a particular future year(s) when

determining the tax rate to apply to existing temporary

differences.

Revision of Future Tax Rates

When a change in the tax rate is enacted, companies should

record its effect on the existing deferred income tax accounts

immediately.

Future tax Rates

Tax Rate ConsiderationsTax Rate ConsiderationsTax Rate ConsiderationsTax Rate Considerations

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

19-43

Net operating loss (NOL) = tax-deductible expenses

exceed taxable revenues.

Tax laws permit taxpayers to use the losses of one year to

offset the profits of other years (carryback and

carryforward).

Accounting for Net Operating LossesAccounting for Net Operating LossesAccounting for Net Operating LossesAccounting for Net Operating Losses

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

19-44

Loss Carryback


Back 2 years and forward 20 years.

Losses must be applied to earliest year first.

Illustration 19-29


19-45

Loss Carryforward

May elect to forgo loss carryback and

Carryforward losses 20 years.



Illustration 19-30

19-46

BE19-12: Conlin Corporation had the following tax information.


Taxable Tax Taxes

Year Income Rate Paid

2008 300,000$ 35% 105,000$

2009 325,000 30% 97,500

2010 400,000 30% 120,000

In 2011 Conlin suffered a net operating loss of $480,000,

which it elected to carry back. The 2011 enacted tax rate is

29%. Prepare Conlin’s entry to record the effect of the loss

carryback.


19-47

BE19-12 2008 2009 2010 2011

Financial income 300,000$ 325,000$ 400,000$

Difference

Taxable income (loss) 300,000 325,000 400,000 (480,000)

Rate 35% 30% 30% 29%

Income tax 105,000$ 97,500$ 120,000$

NOL Schedule

Taxable income 300,000$ 325,000$ 400,000$ (480,000)

Carryback (325,000) (155,000) 480,000

Taxable income 300,000 - 245,000 -

Rate 35% 30% 30% 29%

Income tax (revised) 105,000$ -$ 73,500$ -

Refund 97,500$ 46,500$


$144,000$144,000


19-48

E19-12: Journal Entry for 2011


Income tax refund receivable 144,000

Benefit due to loss carryback

144,000


19-49


BE19-13: Rode Inc. incurred a net operating loss of €500,000

in 2010. Combined income for 2008 and 2009 was €350,000.

The tax rate for all years is 40%. Rode elects the carryback

option. Prepare the journal entries to record the benefits of the

loss carryback and the loss carryforward.


19-50


BE19-13 2008-2009 2010 2011

Financial income 350,000$

Difference

Taxable income (loss) 350,000 (500,000)

Rate 40% 40%

Income tax 140,000$

NOL Schedule

Taxable income 350,000$ (500,000)

Carryback (350,000) 350,000

Taxable income - (150,000)

Rate 40% 40%

Income tax (revised) -$ (60,000)


19-51

E19-13: Journal Entries for 2010



Benefit due to loss carryback

140,000


Benefit due to loss carryforward

60,000


19-52



BE19-14: Use the information for Rode Inc. given in BE19-13.

Assume that it is more likely than not that the entire net

operating loss carryforward will not be realized in future years.

Prepare all the journal entries necessary at the end of 2010.

19-53

E19-14: Journal Entries for 2010


Benefit due to loss carryback 140,000


Benefit due to loss carryforward 60,000

Benefit due to loss carryforward 60,000

Allowance for deferred tax asset 60,000



19-54

Whether the company will realize a deferred tax asset depends on

whether sufficient taxable income exists or will exist within the

carryforward period.

Valuation Allowance RevisitedValuation Allowance RevisitedValuation Allowance RevisitedValuation Allowance Revisited

Text Illustration 19-37: Possible Sources of Taxable Income

To the extent that it is not probable that taxable profit will be

available against which the unused tax losses or unused tax

credits can be utilized, the deferred tax asset is not recognized.


19-55

Statement of Financial Position

Financial Statement PresentationFinancial Statement PresentationFinancial Statement PresentationFinancial Statement Presentation

The net deferred tax asset or net deferred tax liability is reported in the non-current section of the statement of financial position.

LO 9

Illustration 19-38

19-56

Income Statement


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

Companies allocate income tax expense (or benefit) to

continuing operations,

discontinued operations,

other comprehensive income, and

prior period adjustments.

19-57

Income StatementIncome StatementIncome StatementIncome Statement

Components of income tax expense (benefit) may include:

1. Current tax expense (benefit).

2. Any adjustments recognized in the period for current tax of prior periods.

3. Amount of deferred tax expense (benefit) relating to the origination and reversal of temporary differences.

4. Amount of deferred tax expense (benefit) relating to changes in tax rates or the imposition of new taxes.

5. Amount of the benefit arising from a previously unrecognized tax loss, tax credit, or temporary difference of a prior period that is used to reduce current and deferred tax expense.

LO 9

19-58

Tax Reconciliation


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

Companies either provide:

A numerical reconciliation between tax expense (benefit)

and the product of accounting profit multiplied by the

applicable tax rate(s), disclosing also the basis on which

the applicable tax rate(s) is (are) computed; or

A numerical reconciliation between the average effective

tax rate and the applicable tax rate, disclosing also the

basis on which the applicable tax rate is computed.

19-59

Review of the Asset-Liability MethodReview of the Asset-Liability MethodReview of the Asset-Liability MethodReview of the Asset-Liability Method

Companies apply the following basic principles:

LO 10 Indicate the basic principles of the asset-liability method.

Illustration 19-42

19-60

Review of the Asset-Liability MethodReview of the Asset-Liability MethodReview of the Asset-Liability MethodReview of the Asset-Liability Method

LO 10 Indicate the basic principles of the asset-liability method.

Illustration 19-43Procedures for Computingand Reporting DeferredIncome Taxes

19-61

U.S. GAAP classifies deferred taxes based on the classification of the

asset or liability to which it relates. The classification of deferred taxes

under IFRS is always non-current.

U.S. GAAP uses an impairment approach for deferred tax assets. In this

approach, the deferred tax asset is recognized in full. It is then reduced

by a valuation account if it is more likely than not that all or a portion of

the deferred tax asset will not be realized. Under IFRS, an affirmative

judgment approach is used, by which a deferred tax asset is recognized

up to the amount that is probable to be realized.

19-62

For U.S. GAAP, the enacted tax rate must be used. IFRS uses the

enacted tax rate or substantially enacted tax rate. (“Substantially

enacted” means virtually certain.)

The tax effects related to certain items are reported in equity under

IFRS. That is not the case under U.S. GAAP, which charges or credits

the tax effects to income.

U.S. GAAP requires companies to assess the likelihood of uncertain

tax positions being sustainable upon audit. Potential liabilities must be

accrued and disclosed if the position is “more likely than not” to be

disallowed. Under IFRS, all potential liabilities must be recognized.

With respect to measurement, IFRS uses an expected-value approach

to measure the tax liability, which differs from U.S. GAAP.

19-63

Fiscal Year-2010

Allman Company, which began operations at the beginning of 2010,

produces various products on a contract basis. Each contract

generates a gross profit of $80,000. Some of Allman’s contracts

provide for the customer to pay on an installment basis. Under these

contracts, Allman collects one-fifth of the contract revenue in each of

the following four years. For financial reporting purposes, the company

recognizes gross profit in the year of completion (accrual basis); for tax

purposes, Allman recognizes gross profit in the year cash is collected

(installment basis).

LO 11 Understand and apply the concepts and procedures of interperiod tax allocation.

19-64

Fiscal Year-2010

Presented below is information related to Allman’s operations for 2010.

1. In 2010, the company completed seven contracts that allow for the customer to pay on an installment basis. Allman recognized the related gross profit of $560,000 for financial reporting purposes. It reported only $112,000 of gross profit on installment sales on the 2010 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of $112,000 in each of the next four years.

2. At the beginning of 2010, Allman Company purchased depreciable assets with a cost of $540,000. For financial reporting purposes, Allman depreciates these assets using the straight-line method over a six-year service life. The following is the depreciation schedule for both financial and tax purposes.

LO 11

19-65

Fiscal Year-2010

LO 11

3. The company warrants its product for two years from the date of completion of a contract. During 2010, the product warranty liability accrued for financial reporting purposes was $200,000, and the amount paid for the satisfaction of warranty liability was $44,000. Allman expects to settle the remaining $156,000 by expenditures of $56,000 in 2011 and $100,000 in 2012.

19-66

Fiscal Year-2010

LO 11

4. In 2010 nontaxable municipal bond interest revenue was $28,000.

5. During 2010 nondeductible fines and penalties of $26,000 were paid.

6. Pretax financial income for 2010 amounts to $412,000.

7. Tax rates enacted before the end of 2010 were:

► 2010 50%

► 2011 and later years 40%

8. The accounting period is the calendar year.

9. The company is expected to have taxable income in all future years.

19-67

Taxable Income and Income Tax Payable-2010

LO 11

The first step is to determine Allman Company’s income tax

payable for 2010 by calculating its taxable income.

Illustration 19A-1

Illustration 19A-2

19-68

Deferred Income Taxes – End of 2010

LO 11

Illustration 19A-3

Illustration 19A-4

19-69

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes - 2010

LO 11

Illustration 19A-5Computation of Deferred Tax Expense (Benefit), 2010

Computation of Net Deferred Tax Expense, 2010 Illustration 19A-6

19-70

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes - 2010

LO 11

Illustration 19A-7Computation of Total Income Tax Expense, 2010

Journal Entry for Income Tax Expense, 2010


Deferred Tax Asset 62,400

Income Tax Payable

50,000


186,400

19-71

Companies should classify deferred tax assets and liabilities as

current and noncurrent on the balance sheet based on the

classifications of related assets and liabilities.

Financial Statement Presentation - 2010

LO 11

Illustration 19A-8

19-72

Statement of Financial Position 2010

Financial Statement Presentation - 2010

LO 11

Illustration 19A-9

Illustration 19A-10

Income Statement 2010

19-73

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19-1 Volume 2. 19-2 C H A P T E R 19 ACCOUNTING FOR INCOME TAXES Intermediate Accounting IFRS...

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