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

3. 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)

4. 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

5. 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.

6. 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.

7. 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 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.

8. 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.

9. 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.

10. Financial Reporting for 2010
Balance Sheet
Income Statement
2010
2010
Assets:
Revenues:
Expenses:
Liabilities:
Deferred taxes ,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.

11. 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 Examples of Temporary Differences
LO 2 Describe a temporary difference that results in future taxable amounts.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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 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.

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

22. 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.

23. 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.

24. 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.

25. 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.

26. 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.

27. 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.

28. 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.

29. 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.

30. 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.

31. 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 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 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.

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

33. 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.

34. 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.

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

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

37. 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.

38. 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.

39. 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 Examples of Temporary Differences
LO 6 Describe various temporary and permanent differences.

40. 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 Examples of Permanent Differences
LO 6 Describe various temporary and permanent differences.

41. 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.

42. 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.

43. Permanent Differences
E19-4: Havaci Company reports pretax financial income of $80,000 for 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.

44. Permanent Differences
LO 6 Describe various temporary and permanent differences.

45. 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.

46. 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.

47. 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.

48. 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.

49. 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.

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

51. 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.

52. Accounting for Net Operating Losses
BE19-13: Rode Inc. incurred a net operating loss of $500,000 in 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.

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

54. 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.

55. Accounting for Net Operating Losses
BE (Carryback and Carryforward with Valuation Allowance): Use the information for Rode Inc. given in BE 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.

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

57. 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 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 Evidence to Consider in Evaluating the need for a Valuation Account
LO 8 Apply accounting procedures for a loss carryback and a loss carryforward.

58. 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.

59. 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.

60. 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.

61. 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.

62. 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.

63. 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.

64. 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.

65. 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

66. 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

67. 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: %
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

68. 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

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

70. 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

71. 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

72. 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

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

74. Copyright
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