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Chapter 19: Q2CE (page 1109)

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

Short Answer

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Answer

  1. To identify the amount of tax payable or refundablein the current year
  2. To identify thedeferred tax asset or liability created due to timing differences at the date of the financial statements.

Step by step solution

01

Meaning of Financial Statements

Financial statement means the the written record of the company’s historical financial information. It shows the financial position and the performance of the company.

02

The two basic requirements are

1. The current and deferred income tax should be measured at the financial statement date to identify whether the company is required to pay the income tax in the current year or the company is receiving a refund from the government.

2. It is measured to know whether the timing difference arises due to the taxable income and accounting income difference. And if it arises, whether it is a deferred tax asset or a liability.

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Most popular questions from this chapter

Teri Hatcher Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2016. Book Basis Tax Basis Equipment (net) \(400,000 \)340,000 Estimated warranty liability \(200,000 \) –0– It is estimated that the warranty liability will be settled in 2017. The difference in equipment (net) will result in taxable amounts of \(20,000 in 2017, \)30,000 in 2018, and \(10,000 in 2019. The company has taxable income of \)520,000 in 2016. As of the beginning of 2016, the enacted tax rate is 34% for 2016–2018, and 30% for 2019. Hatcher expects to report taxable income through 2019.Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2016.

Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.

At December 31, 2017, Hillyard Corporation has a deferred tax asset of \(200,000. After a careful review of all available evidence, it is determined that it is probable that \)60,000 of this deferred tax asset will not be realized. Prepare the necessary journal entry.

Explain the difference between pretax financial income and taxable income.

Nadal Inc. has two temporary differences at the end of 2016. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal’s accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows. 2017 2018 2019 2020 Taxable amounts \(40,000 \)50,000 \(60,000 \)80,000 Deductible amounts (15,000) (19,000) \(40,000 \)35,000 \(41,000 \)80,000 As of the beginning of 2016, the enacted tax rate is 34% for 2016 and 2017, and 38% for 2018–2021. At the beginning of 2016, the company had no deferred income taxes on its balance sheet. Taxable income for 2016 is $500,000. Taxable income is expected in all future years. Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (b) Indicate how deferred income taxes would be classified on the balance sheet at the end of 2016.
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