1. Chapter 13 Taxes Understand the purposes of income and other taxes.
Contrast the purpose of taxes and financial reporting.
Distinguish between the cash and allocation approach to taxes.

2. Liabilities: Taxes Ward and June Beav and Wally Eddie Haskel
Taxing subject
Seinfeld…..
Ward and June
Beav and Wally
Eddie Haskel
Go to your room!

3. Why Taxes? Five purposes of taxes Any preferences….
So…purpose of Taxes vs. Financial Accounting

4. Liabilities - Taxes Taxes on the Income Statement, Exhibit 13.2…
Inconsistency?
Leads to accounting problem.

5. Accounting for Taxes Accounting options cash: tax = tax paid
allocation: tax = EBT x Tax rate….
Tax payable based on return.
Tax expense based on ni.
Balancing dr. or cr.?

6. Tax Allocation Pro: extension of accrual matching smoothing ni
evens (not Evans) out. Exhibit 13.3
Con:
an expense….?
not even out. Exhibit 13.4
uncertainty in I/S: tax changes
fictional accounting
So…perfectly appropriate and perfectly consistent leads to confusing and controversial accounting.

7. Taxes
Pronouncements
APB O11 (1967) Comprehensive allocation and deferred charges and credits
SFAC 3 (1980) oops. No deferred charges and credits allowed.
SFAS 96 (1987, deferred 3 times) double oops. Asymmetrical tax assets and liabilities.
SFAS 109 (1992) asset if >50% !

8. Taxes: Conclusions 3 Difficult Questions 1. Are taxes an expense?
2. Can you have a liability…..
3. What’s the event?

9. Taxes Discussion Case 13.1: Rustbelt Manufacturing, GAAP vs. CF!
Updates….