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Chapter 19: 15Q (page 1093)

What are some of the reasons that the components of income tax expense should be disclosed and a reconciliation between the effective tax rate and the statutory tax rate be provided?

Short Answer

Expert verified

Thestatutory tax rate is the type of income tax rate imposed on the total taxable income. The law imposes this rate on different tax brackets.

Step by step solution

01

Introduction

Organizations should disclose the amount of their total income tax expense in the financial market since it positively impacts the mindset of investors and the public. A contribution to the country or economic development is vital in attracting outsiders to invest more funds.

02

Reasons

1. To determine the earnings quality: Investors in the financial market (before investing their funds into the organization) assess the firm's quality, worth, and growth by reconciling the pretax financial income to the taxable income. The amount is studied thoroughly, and the effective tax rate is applied.

2. Secure future cash flows: Computing the deferred tax in advance by the organization and noticing its growth or decline rate helps the firm ascertain its future cash flows and the total amount of tax payable.

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Most popular questions from this chapter

The following information is available for Remmers Corporation for 2017. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by \(120,000. This difference will reverse in equal amounts of \)30,000 over the years 2018–2021. 2. Interest received on municipal bonds was \(10,000. 3. Rent collected in advance on January 1, 2017, totaled \)60,000 for a 3-year period. Of this amount, \(40,000 was reported as unearned at December 31, 2017, for book purposes. 4. The tax rates are 40% for 2017 and 35% for 2018 and subsequent years. 5. Income taxes of \)320,000 are due per the tax return for 2017. 6. No deferred taxes existed at the beginning of 2017. Instructions (a) Compute taxable income for 2017. (b) Compute pretax financial income for 2017. (c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2017 and 2018. Assume taxable income was $980,000 in 2018. (d) Prepare the income tax expense section of the income statement for 2017, beginning with “Income before income taxes.”

Question: What are the two basic requirements applied to the measurement of current and deferred income taxes at the date of the financial statements?

What controversy relates to the accounting for net operating loss carryforwards?

Addison Co. has one temporary difference at the beginning of 2017 of \(500,000. The deferred tax liability established for this amount is \)150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: \(100,000 in 2018, \)200,000 in 2019, and $200,000 in 2020. If a new tax rate for 2020 of 20% is enacted into law at the end of 2017, what is the journal entry necessary in 2017 (if any) to adjust deferred taxes?

What is the difference between a future taxable amount and a future deductible amount? When is it appropriate to record a valuation account for a deferred tax asset?
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