Chapter 19: Accounting for Income Taxes

Question 1

How do you determine the deferred tax liability or tax asset?

Answer 1

Multiply the future tax rate related to that year by the temporary difference.

Question 2

What is the difference between a regular temporary difference and a cumulative difference?

Answer 2

• Regular temporary difference - arises in current year
• Cumulative temporary difference - the accumulation of temporary differences over time

Question 3

What adjustments need to be made if there is a tax rate enactment in the current year?

Answer 3

1. Determine the current tax rate and any future tax rates that affect temporary differences
2. Calculate the difference between the ending and beginning deferred taxes that are wholly related to the tax rate change
3. Increase or reduce the deferred tax and income tax expense

Question 4

How do you determine the pre-tax financial income if only given the taxable income?

Answer 4

1. Determine if there are any temporary differences in the current year
   
   • ​​If there is no change from beginning deferred taxes to ending deferred taxes then there is no temporary difference and pre-tax financial income will equal taxable income
2. Make adjustments based on information provided