ACCOUNTING FOR INCOME TAXES C H A P T E R 19 ACCOUNTING FOR INCOME TAXES Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield

Learning Objectives Identify differences between pretax financial income and taxable income. Describe a temporary difference that results in future taxable amounts. Describe a temporary difference that results in future deductible amounts. Explain the purpose of a deferred tax asset valuation allowance. Describe the presentation of income tax expense in the income statement. Describe various temporary and permanent differences. Explain the effect of various tax rates and tax rate changes on deferred income taxes. Apply accounting procedures for a loss carryback and a loss carryforward. Describe the presentation of deferred income taxes in financial statements. Indicate the basic principles of the asset-liability method. 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)

Accounting for Income Taxes Fundamentals of Accounting for Income Taxes Accounting for Net Operating Losses Financial Statement Presentation Review of Asset-Liability Method Future taxable amounts and deferred taxes Future deductible amounts and deferred taxes Income statement presentation Specific differences Rate considerations Loss carryback Loss carryforward Loss carryback example Loss carryforward example Balance sheet Income statement Uncertain tax positions Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods

Fundamentals of Accounting for Income Taxes Corporations must file income tax returns following the guidelines developed by the Internal Revenue Service (IRS), thus they: calculate taxes payable based upon IRS code, calculate income tax expense based upon GAAP. Amount reported as tax expense will often differ from the amount of taxes payable to the IRS. LO 1 Identify differences between pretax financial income and taxable income.

Fundamentals of Accounting for Income Taxes Financial Statements Tax Return Illustration 19-1 IRS vs. Exchanges Investors and Creditors  Pretax Financial Income Taxable Income GAAP Tax Code  Income Tax Expense Income Tax Payable LO 1 Identify differences between pretax financial income and taxable income.

Fundamentals of Accounting for Income Taxes Illustration: KRC, Inc. reported revenues of $130,000 and expenses of $60,000 in each of its first three years of operations. For tax purposes, KRC reported the same expenses to the IRS in each of the years. KRC reported taxable revenues of $100,000 in 2010, $150,000 in 2011, and $140,000 in 2012. What is the effect on the accounts of reporting different amounts of revenue for GAAP versus tax? LO 1 Identify differences between pretax financial income and taxable income.

Book vs. Tax Difference GAAP Reporting Tax Reporting 2010 2011 2012 Illustration 19-2 GAAP Reporting 2010 2011 2012 Total Revenues $130,000 $130,000 $130,000 $390,000 Expenses 60,000 60,000 60,000 180,000 Pretax financial income $70,000 $70,000 $70,000 $210,000 Income tax expense (40%) $28,000 $28,000 $28,000 $84,000 Illustration 19-3 Tax Reporting 2010 2011 2012 Total Revenues $100,000 $150,000 $140,000 $390,000 Expenses 60,000 60,000 60,000 180,000 Pretax financial income $40,000 $90,000 $80,000 $210,000 Income tax payable (40%) $16,000 $36,000 $32,000 $84,000 LO 1 Identify differences between pretax financial income and taxable income.

Book vs. Tax Difference Comparison Illustration 19-4 Comparison 2010 2011 2012 Total Income tax expense (GAAP) $28,000 $28,000 $28,000 $84,000 Income tax payable (IRS) 16,000 36,000 32,000 84,000 Difference $12,000 $(8,000) $(4,000) $0 Are the differences accounted for in the financial statements? Yes Year Reporting Requirement 2010 Deferred tax liability account increased to $12,000 2011 Deferred tax liability account reduced by $8,000 2012 Deferred tax liability account reduced by $4,000 LO 1 Identify differences between pretax financial income and taxable income.

Financial Reporting for 2010 Balance Sheet Income Statement 2010 2010 Assets: Revenues: Expenses: Liabilities: Deferred taxes 12,000 Income tax payable 16,000 Equity: Income tax expense 28,000 Net income (loss) Where does the “deferred tax liability” get reported in the financial statements? LO 1 Identify differences between pretax financial income and taxable income.

Temporary Differences Future Taxable Amounts Future Deductible Amounts 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 Amounts Deferred 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.

Future Taxable Amounts and Deferred Taxes Illustration: In KRC’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. KRC reports accounts receivable at $30,000 in the December 31, 2010, GAAP-basis balance sheet. However, the receivables have a zero tax basis. Illustration 19-5 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes Illustration: Reversal of Temporary Difference, KRC Inc. Illustration 19-6 KRC assumes that it will collect the accounts receivable and report the $30,000 collection as taxable revenues in future tax returns. KRC does this by recording a deferred tax liability. LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes Deferred Tax Liability A deferred 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. Illustration 19-4 2010 2011 2012 Total Income tax expense (GAAP) $28,000 $28,000 $28,000 $84,000 Income tax payable (IRS) 16,000 36,000 32,000 84,000 Difference $12,000 $(8,000) $(4,000) $0 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes Deferred Tax Liability Illustration: Because it is the first year of operations for KRC, there is no deferred tax liability at the beginning of the year. KRC computes the income tax expense for 2010 as follows: Illustration 19-9 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes Deferred Tax Liability Illustration: KRC makes the following entry at the end of 2010 to record income taxes. Income Tax Expense 28,000 Income Tax Payable 16,000 Deferred Tax Liability 12,000 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes Deferred Tax Liability Illustration: Computation of Income Tax Expense for 2011. Illustration 19-10 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes Deferred Tax Liability Illustration: KRC makes the following entry at the end of 2011 to record income taxes. Income Tax Expense 28,000 Deferred Tax Liability 8,000 Income Tax Payable 36,000 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes Deferred Tax Liability Illustration: The entry to record income taxes at the end of 2012 reduces the Deferred Tax Liability by $4,000. The Deferred Tax Liability account appears as follows at the end of 2012. Illustration 19-11 LO 2 Describe a temporary difference that results in future taxable amounts.

Future Taxable Amounts and Deferred Taxes 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 Compute taxable income and income taxes payable for 2010. 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.

Future Taxable Amounts and Deferred Taxes LO 2 Describe a temporary difference that results in future taxable amounts.

Future Deductible Amounts and Deferred Taxes Illustration: During 2010, 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 2010 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.

Future Deductible Amounts and Deferred Taxes Illustration: Reversal of Temporary Difference, Cunningham Inc. Illustration 19-13 When Cunningham pays the warranty liability, it reports an expense (deductible amount) for tax purposes. Cunningham reports this future tax benefit in the December 31, 2010, balance sheet as a deferred tax asset. LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset A 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. LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset Illustration: Hunt Co. accrues a loss and a related liability of $50,000 in 2010 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 2011. Illustration 19-14 LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset Illustration: Assuming that 2010 is Hunt’s first year of operations, and income tax payable is $100,000, Hunt computes its income tax expense as follows. Illustration 19-16 LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset Illustration: Hunt makes the following entry at the end of 2010 to record income taxes. Income Tax Expense 80,000 Deferred Tax Asset 20,000 Income Tax Payable 100,000 LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset Illustration: Computation of Income Tax Expense for 2011. Illustration 19-17 LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset Illustration: Hunt makes the following entry at the end of 2011 to record income taxes. Income Tax Expense 160,000 Deferred Tax Asset 20,000 Income Tax Payable 140,000 LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset Illustration: The entry to record income taxes at the end of 2011 reduces the Deferred Tax Asset by $20,000. Illustration 19-18 LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes 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 Compute taxable income and income taxes payable for 2010. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2010. LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes LO 3 Describe a temporary difference that results in future deductible amounts.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset—Valuation Allowance A company should reduce a deferred tax asset by a valuation allowance if it is more likely than not that it will not realize some portion or all of the deferred tax asset. “More likely than not” means a level of likelihood of at least slightly more than 50 percent. LO 4 Explain the purpose of a deferred tax asset valuation allowance.

Future Deductible Amounts and Deferred Taxes 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 more likely than not that $30,000 of the deferred tax asset will not be realized, prepare the journal entries required for 2011. LO 4 Explain the purpose of a deferred tax asset valuation allowance.

Future Deductible Amounts and Deferred Taxes LO 4 Explain the purpose of a deferred tax asset valuation allowance.

Future Deductible Amounts and Deferred Taxes Deferred Tax Asset—Valuation Allowance E19-14 Balance Sheet Presentation LO 4 Explain the purpose of a deferred tax asset valuation allowance.

Income Statement Presentation Formula to Compute Income Tax Expense Illustration 19-20 Income tax payable or refundable 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 (current and deferred). LO 5 Describe the presentation of income tax expense in the income statement.

Income Statement Presentation Given the previous information related to KRC Inc., KRC reports its income statement as follows. Illustration 19-21 LO 5 Describe the presentation of income tax expense in the income statement.

Text Illustration 19-22 Examples of Temporary Differences Specific Differences Temporary Differences Taxable temporary differences - Deferred tax liability Deductible temporary differences - Deferred tax Asset Text Illustration 19-22 Examples of Temporary Differences LO 6 Describe various temporary and permanent differences.

Text Illustration 19-24 Examples of Permanent Differences Specific Differences Permanent differences are caused by items that (1) enter into pretax financial income but never into taxable income or (2) enter into taxable income but never into pretax financial income. Permanent differences affect only the period in which they occur, they do not give rise to future taxable or deductible amounts. There are no deferred tax consequences to be recognized. Text Illustration 19-24 Examples of Permanent Differences LO 6 Describe various temporary and permanent differences.

Future Deductible Amount Future Deductible Amount Specific Differences Do the following generate: Future Deductible Amount = Deferred Tax Asset Future Taxable Amount = Deferred Tax Liability A Permanent Difference 1. The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes. Future Taxable Amount 2. A landlord collects some rents in advance. Rents received are taxable in the period when they are received. Future Deductible Amount 3. Expenses are incurred in obtaining tax-exempt income. Permanent Difference 4. Costs of guarantees and warranties are estimated and accrued for financial reporting purposes. Future Deductible Amount LO 6 Describe various temporary and permanent differences.

A Permanent Difference Future Deductible Amount Specific Differences Do the following generate: Future Deductible Amount = Deferred Tax Asset Future Taxable Amount = Deferred Tax Liability A Permanent Difference 5. Sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes. Future Taxable Amount 6. Proceeds are received from a life insurance company because of the death of a key officer (the company carries a policy on key officers). A Permanent Difference 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.. Future Deductible Amount LO 6 Describe various temporary and permanent differences.

Permanent 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. Depreciation on the tax return is greater than depreciation on the income statement by $16,000. Rent collected on the tax return is greater than rent earned on the income statement by $27,000. 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. LO 6 Describe various temporary and permanent differences.

Permanent Differences LO 6 Describe various temporary and permanent differences.

Specific Differences Tax Rate Considerations 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. LO 7 Explain the effect of various tax rates and tax rate changes on deferred income taxes.

Accounting for Net Operating Losses Net operating loss (NOL) = tax-deductible expenses exceed taxable revenues. The federal tax laws permit taxpayers to use the losses of one year to offset the profits of other years (carryback and carryforward). LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses Loss Carryback Back 2 years and forward 20 years Losses must be applied to earliest year first Illustration 19-29 LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses Loss Carryforward May elect to forgo loss carryback and Carryforward losses 20 years Illustration 19-30 LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses BE19-12: (Carryback) Conlin Corporation had the following tax information. 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 Valis’s entry to record the effect of the loss carryback. LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses $144,000 LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses E19-12: Journal Entry for 2011 Income tax refund receivable 144,000 Benefit due to loss carryback 144,000 LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses 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. LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses E19-13: Journal Entries for 2010 Income tax refund receivable 140,000 Benefit due to loss carryback 140,000 Deferred tax asset 60,000 Benefit due to loss carryforward 60,000 LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses BE19-14 (Carryback and Carryforward with Valuation Allowance): 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. LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Accounting for Net Operating Losses E19-14: Journal Entries for 2010 LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Valuation Allowance Revisited Whether the company will realize a deferred tax asset depends on whether sufficient taxable income exists or will exist within the carryforward period. Text Illustration 19-37 Possible Sources of Taxable Income If any one of these sources is sufficient to support a conclusion that a valuation allowance is unnecessary, a company need not consider other sources. Text Illustration 19-38 Evidence to Consider in Evaluating the need for a Valuation Account LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

Financial Statement Presentation Balance Sheet Presentation An individual deferred tax liability or asset is classified as current or noncurrent based on the classification of the related asset or liability for financial reporting purposes. Companies should classify deferred tax accounts on the balance sheet in two categories: one for the net current amount, and one for the net noncurrent amount. LO 9 Describe the presentation of deferred income taxes in financial statements.

Financial Statement Presentation Income Statement Presentation Companies should allocate income tax expense (or benefit) to continuing operations, discontinued operations, extraordinary items, and prior period adjustments. Companies should disclose the significant components of income tax expense attributable to continuing operations (current tax expense, deferred tax expense, etc.). LO 9 Describe the presentation of deferred income taxes in financial statements.

Review of the Asset-Liability Method Companies apply the following basic principles: Recognize a current tax liability or asset for the estimated taxes payable or refundable. Recognize a deferred tax liability or asset for the estimated future tax effects attributable to temporary differences and carryforwards using enacted tax rate. Base the measurement of current and deferred taxes on provisions of the enacted tax law. Reduce the measurement of deferred tax assets, if necessary, by the amount of any tax benefits that, companies do not expect to realize. LO 10 Indicate the basic principles of the asset-liability method.

Review of the Asset-Liability Method Illustration 19-43 Procedures for Computing and Reporting Deferred Income Taxes LO 10 Indicate the basic principles of the asset-liability method.

The classification of deferred taxes under iGAAP is always noncurrent. Under iGAAP, an affirmative judgment approach is used, by which a deferred tax asset is recognized up to the amount that is probable to be realized. U.S. GAAP uses an impairment approach. iGAAP uses the enacted tax rate or substantially enacted tax rate. (“Substantially enacted” means virtually certain.) For U.S. GAAP, the enacted tax rate must be used.

The tax effects related to certain items are reported in equity under iGAAP. 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 iGAAP, all potential liabilities must be recognized. With respect to measurement, iGAAP uses an expected-value approach to measure the tax liability, which differs from U.S. GAAP.

Fiscal Year-2009 Allman Company, which began operations at the beginning of 2009, 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.

Fiscal Year-2009 Presented below is information related to Allman’s operations for 2009. In 2009, 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 2009 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. At the beginning of 2009, 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. For tax purposes, the assets fall in the five-year recovery class, and Allman uses the MACRS system. LO 11

Fiscal Year-2009 The company warrants its product for two years from the date of completion of a contract. During 2009, 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 2010 and $100,000 in 2011. LO 11

Fiscal Year-2009 In 2009 nontaxable municipal bond interest revenue was $28,000. During 2009 nondeductible fines and penalties of $26,000 were paid. Pretax financial income for 2009 amounts to $412,000. Tax rates enacted before the end of 2009 were: 2009 50% 2010 and later years 40% The accounting period is the calendar year. The company is expected to have taxable income in all future years. LO 11

Taxable Income and Income Tax Payable-2009 The first step is to determine Allman Company’s income tax payable for 2009 by calculating its taxable income. Illustration 19A-1 Illustration 19A-2 LO 11

Computing Deferred Income Taxes – End of 2009 Illustration 19A-3 Illustration 19A-4 LO 11

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes - 2009 Computation of Deferred Tax Expense (Benefit), 2009 Illustration 19A-5 Computation of Net Deferred Tax Expense, 2009 Illustration 19A-6 LO 11

Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes - 2009 Computation of Total Income Tax Expense, 2009 Illustration 19A-7 Journal Entry for Income Tax Expense, 2009 Income Tax Expense 174,000 Deferred Tax Asset 62,400 Income Tax Payable 50,000 Deferred Tax Liability 186,400 LO 11

Financial Statement Presentation - 2009 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. Illustration 19A-8 LO 11

Financial Statement Presentation - 2009 Balance Sheet Presentation of Deferred Taxes, 2009 Illustration 19A-9 Illustration 19A-10 LO 11

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