chapter 16 accounting for income taxes

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1、CHAPTER16ACCOUNTINGFORINCOMETAXESQUESTIONSFORREVIEWOFKEYTOPICSQuestion16-1Incometaxexpenseiscomprisedofboththecurrentandthedeferredtaxconsequencesofeventsandtransactionsalreadyrecognized.Specifically,itincludes(a)theincometaxthatispayablecurrentlyand(b)thechangeinthedeferredtaxliability(oras

2、set).Apparently,inthesituationdescribed,temporarydifferencesrequireda$4.4millionincreaseinthedeferredtaxliability,a$4.4milliondecreaseinthedeferredtaxasset,orsomecombinationofthetwo.Question16-2Temporarydifferencesbetweenthereportedamountofanassetorliabilityinthefinancialstatementsanditstaxb

3、asisareprimarilycausedbyrevenues,expenses,gains,andlossesbeingincludedintaxableincomeinayearearlierorlaterthantheyearinwhichtheyarerecognizedforfinancialreportingpurpose,althoughthereareother,lesscommon,eventsthatcancausethesetemporarydifferences.Sometemporarydifferencescreatedeferredtaxliab

4、ilitiesbecausetheyresultintaxableamountsinsomefutureyear(s)whentherelatedassetsarerecoveredortherelatedliabilitiesaresettled(whenthetemporarydifferencesreverse).Anexampleisthereceivablecreatedwheninstallmentsalegrossprofitisrecognizedforfinancialreportingpurposes.Whenthisassetisrecovered,tax

5、ableamountsareproducedbecausetheinstallmentsalegrossprofitisthenrecognizedfortaxpurposes.Sometemporarydifferencescreatedeferredtaxassetsbecausetheyresultindeductibleamountsinsomefutureyear(s)whentherelatedassetsarerecoveredortherelatedliabilitiesaresettled(whenthetemporarydifferencesreverse)

6、.Anexampleistheliabilitycreatedwhenestimatedwarrantyexpenseisrecognizedforfinancialreportingpurposes.Whenthisliabilityissettled,deductibleamountsareproducedbecausethewarrantycostisthendeductedfortaxpurposes.Thedeferredtaxliabilityorasseteachyearisthetaxratetimesthetemporarydifferencebetweent

7、hefinancialstatementcarryingamountofthereceivableanditstaxbasis.Question16-3Futuredeductibleamountsmeanthattaxableincomewillbedecreasedrelativetoaccountingincomeinoneormorefutureyears.Twoexamplesare(a)estimatedexpensesthatarerecognizedonincomestate