Kieso_Inter_Ch19 - IfRS (Inome Taxes)

7/21/2019 Kieso_Inter_Ch19 - IfRS (Inome Taxes)

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19-1

Volume 2



19-2

C H A P T E R 19

ACCOUNTING FOR INCOME TAXES

Intermediate Accounting

IFRS Edition

Kieso, Weygandt, and Warfield



19-3

1. Identify differences between pretax financial income and taxable income.2. Describe a temporary difference that results in future taxable amounts.

3. Describe a temporary difference that results in future deductible amounts.

4. Explain the non-recognition of a deferred tax asset.

. Describe the presentation of income tax expense in the income statement.

!. Describe "arious temporary and permanent differences.

#. Explain the effect of "arious tax rates and tax rate changes on deferred

income taxes.

$. %pply accounting procedures for a loss carrybac& and a loss carryforward.

'. Describe the presentation of income taxes in financial statements.

1(. Indicate the basic principles of the asset-liability method.

Lear!" O#$e%&!'e(

Lear!" O#$e%&!'e(



19-)

Fu*ame&al( o+A%%ou&!" +orI%ome Ta,e(

)uture taxable

amounts anddeferred taxes

)uture deductibleamounts anddeferred taxes

Income statement

presentation*pecificdifferences

+ateconsiderations

A%%ou&!" +or Ne&Oera&!" Lo((e(

F!a%!al S&a&eme&Pre(e&a&!o

Re'!e. o+ A((e&-L!a#!l!&/ Me&0o*

,oss carrybac&

,oss carryforward

,oss carrybac&example

,oss carryforwardexample

*tatement of

financial positionIncome statement

ex reconciliation

A%%ou&!" +or I%ome Ta,e(

A%%ou&!" +or I%ome Ta,e(



19-

orporations must file income tax returns following theguidelines de"eloped by the appropriate taxing authority/

thus they0

LO 1 Identify differences between pretax financial income and taxable income.

Fu*ame&al( o+ A%%ou&!" +or I%ome Ta,e(


calculate &a,e( a/a#le based upon tax regulations/

calculate !%ome &a, e,e(e based upon I)+*.

%mount reported as tax expense will often differ from the

amount of taxes payable to the taxing authority.



19-

ax ode

Exchanges

In"estors and reditors

F!a%!al S&a&eme&(

retax )inancial IncomeI)+*

Income ax Expense

axable Income

Income ax ayable

Ta, Re&ur

'(.




Illu(&ra&!o 19-1

Ta,Au&0or!&/



19-

Illu(&ra&!o4 helsea/ Inc. reported re"enues of 13(/((( and

expenses of !(/((( in each of its first three years of operations.

)or tax purposes/ helsea reported the same expenses to the tax

authority in each of the years. helsea reported taxable re"enues

of 1((/((( in 2(11/ 1(/((( in 2(12/ and 14(/((( in 2(13.

hat is the effect on the accounts of reporting different amounts of

re"enue for I)+* "ersus tax


Fu*ame&al( o+ A%%ou&!" +or I%ome Ta,e(Fu*ame&al( o+ A%%ou&!" +or I%ome Ta,e(



19-5

+e"enues

Expenses

retax financial income

Income tax expense 54(67

13(/(((

!(/(((

#(/(((

2$/(((

13(/(((

2612

!(/(((

#(/(((

2$/(((

13(/(((

2613

!(/(((

#(/(((

2$/(((

3'(/(((

To&al

1$(/(((

21(/(((

$4/(((

IFRS Reor&!"IFRS Reor&!"

+e"enues

Expenses

retax financial income

Income tax payable 54(67

1((/(((

2611

!(/(((

4(/(((

1!/(((

1(/(((

2612

!(/(((

'(/(((

3!/(((

14(/(((

2613

!(/(((

$(/(((

32/(((

3'(/(((

To&al

1$(/(((

21(/(((

$4/(((

Ta, Reor&!"Ta, Reor&!"

2611


7oo8 '( Ta, :!++ere%e7oo8 '( Ta, :!++ere%e

Illu(&ra&!o 19-2

Illu(&ra&!o 19-3



19-9

Income tax expense 5I)+*7

Income tax payable 5tax authority7

Difference

2$/(((

1!/(((

12/(((

2$/(((

2612

3!/(((

5$/(((7

2$/(((

2613

32/(((

54/(((7

$4/(((

To&al

$4/(((

(

Comar!(oComar!(o 2611

%re the differences accounted for in the financial statements

8ear +eporting +e9uirement

2(11

2(12

2(13

:e+erre* &a, l!a#!l!&/ a%%ou& !%rea(e* &o ;12<666

:e+erre* &a, l!a#!l!&/ a%%ou& re*u%e* #/ ;5<666

:e+erre* &a, l!a#!l!&/ a%%ou& re*u%e* #/ ;)<666

=e(


7oo8 '( Ta, :!++ere%e7oo8 '( Ta, :!++ere%e

Illu(&ra&!o 19-)



19-16

S&a&eme& o+ F!a%!alPo(!&!o

%ssets0

,iabilities0

E9uity0 I%ome &a, e,e(e 25<666

I%ome S&a&eme&

+e"enues0

Expenses0

:et income 5loss7

2(11 2(11

:e+erre* &a,e( 12<666

here does the ;deferred tax liability< get reported in the financial

statements

I%ome &a, a/a#le 1<666


F!a%!al Reor&!"F!a%!al Reor&!"



19-11

% Temorar/ :!++ere%e is the difference between the tax basis ofan asset or liability and its reported 5carrying or boo&7 amount in thefinancial statements that will result in &a,a#le amounts or *e*u%&!#le amounts in future years.

Fu&ure Ta,a#le Amou&( Fu&ure :e*u%&!#le Amou&(:e+erre* Ta, L!a#!l!&/ representsthe increase in taxes payable infuture years as a result of taxabletemporary differences existing at

the end of the current year.

:e+erre* Ta, A((e& represents theincrease in taxes refundable 5orsa"ed7 in future years as a result ofdeductible temporary differences

existing at the end of the currentyear.

Illu(&ra&!o 19-224 E,amle( o+ Temorar/ :!++ere%e(

LO 2 Describe a temporary difference that results in future taxable amounts.

Temorar/ :!++ere%e(Temorar/ :!++ere%e(



19-12 LO 2 Describe a temporary difference that results in future taxable amounts.

Fu&ure Ta,a#le Amou&( a* :e+erre* Ta,e(Fu&ure Ta,a#le Amou&( a* :e+erre* Ta,e(

Illu(&ra&!o4 In helsea=s situation/ the only difference between theboo& basis and tax basis of the assets and liabilities relates to

accounts recei"able that arose from re"enue recogni>ed for boo&

purposes. helsea reports accounts recei"able at 3(/((( in the

December 31/ 2(11/ I)+*-basis statement of financial position.?owe"er/ the recei"ables ha"e a >ero tax basis.

Illu(&ra&!o 19-





helsea assumes that it will collect the accounts recei"able and report

the 3(/((( collection as taxable re"enues in future tax returns.

helsea does this by recording a deferred tax liability.

Illu(&ra&!o 19-

Illu(&ra&!o4 +e"ersal of emporary Difference/ helsea Inc.



19-1) LO 2 Describe a temporary difference that results in future taxable amounts.


+epresents the increase in taxes payable in future years as a result

of &a,a#le &emorar/ *!++ere%e( existing at the end of the current

year.

:e+erre* Ta, L!a#!l!&/

Income tax expense 5I)+*7

Income tax payable 5tax authority7Difference

2$/(((

1!/(((12/(((

2$/(((

2611

3!/(((5$/(((7

2$/(((

2612

32/(((54/(((7

$4/(((

To&al

$4/((((

2616

Illu(&ra&!o 19-)





Illu(&ra&!o4 @ecause it is the first year of operations for helsea/

there is no deferred tax liability at the beginning of the year.

helsea computes the income tax expense for 2(11 as follows0


Illu(&ra&!o 19-9





Illu(&ra&!o4 helsea ma&es the following entry at the end of 2(11

to record income taxes.


Income ax Expense 2$/(((

Income ax ayable 1!/(((

Deferred ax ,iability 12/(((





Illu(&ra&!o4 omputation of Income ax Expense for 2(12.


Illu(&ra&!o 19-16





Illu(&ra&!o4 helsea ma&es the following entry at the end of 2(12

to record income taxes.


Income ax Expense 2$/(((

Deferred ax ,iability $/(((

Income ax ayable 3!/(((

Illu(&ra&!o 19-11



19-19

E19-14 *tarfleet orporation has one temporary difference at theend of 2(1( that will re"erse and cause taxable amounts of /(((

in 2(11/ !(/((( in 2(12/ and #/((( in 2(13. *tarfleet=s pretax

financial income for 2(1( is 4((/(((/ and the tax rate is 3(6 for all

years. here are no deferred taxes at the beginning of 2(1(.

I(&ru%&!o(

a7 ompute taxable income and income taxes payable for 2(1(.

b7 repare the Aournal entry to record income tax expense/

deferred income taxes/ and income taxes payable for 2(1(.

LO 2 Describe a temporary difference that results in future taxable amounts.





a

a




19-21

Fu&ure :e*u%&!#le Amou&( a* :e+erre* Ta,e(Fu&ure :e*u%&!#le Amou&( a* :e+erre* Ta,e(

Illu(&ra&!o4 During 2(11/ unningham Inc. estimated its warrantycosts related to the sale of microwa"e o"ens to be ((/(((/ paid

e"enly o"er the next two years. )or boo& purposes/ in 2(11

unningham reported warranty expense and a related estimated

liability for warranties of ((/((( in its financial statements. )ortax purposes/ &0e .arra&/ &a, *e*u%&!o !( o& allo.e* u&!l

a!*.

Illu(&ra&!o 19-12

LO 3 Describe a temporary difference that results in future deductible amounts.



19-22

hen unningham pays the warranty liability/ it reports an expense for tax

purposes. unningham reports this future tax benefit in the December 31/

2(1(/ statement of financial position as a deferred tax asset.

Illu(&ra&!o 19-13

Illu(&ra&!o4 +e"ersal of emporary Difference/ unningham Inc.





19-23

+epresents the increase in taxes refundable 5or sa"ed7 in future

years as a result of *e*u%&!#le &emorar/ *!++ere%e( existing at

the end of the current year.

:e+erre* Ta, A((e&





19-2)

Illu(&ra&!o4 ?unt o. accrues a loss and a related liability of

(/((( in 2(11 for financial reporting purposes because of pending

litigation. ?unt cannot deduct this amount for tax purposes until the

period it pays the liability/ expected in 2(12.

:e+erre* Ta, A((e&


Illu(&ra&!o 19-1)




19-2

Illu(&ra&!o4 %ssuming that 2(11 is ?unt=s first year of operations/

and income tax payable is 1((/(((/ ?unt computes its income tax

expense as follows.

:e+erre* Ta, A((e&


Illu(&ra&!o 19-1




19-2

Illu(&ra&!o4 ?unt ma&es the following entry at the end of 2(11 to

record income taxes.

:e+erre* Ta, A((e&

Income ax Expense $(/(((

Deferred ax %sset2(/(((

Income ax ayable 1((/(((





19-2

Illu(&ra&!o4 omputation of Income ax Expense for 2(12.

:e+erre* Ta, A((e&

Illu(&ra&!o 19-1





19-25

Illu(&ra&!o4 ?unt ma&es the following entry at the end of 2(12 to

record income taxes.

:e+erre* Ta, A((e&

Income ax Expense 1!(/(((

Deferred ax %sset 2(/(((

Income ax ayable 14(/(((



Illu(&ra&!o 19-15



19-29

Illu(&ra&!o4 olumbia orporation has one temporary difference atthe end of 2(1( that will re"erse and cause deductible amounts of

(/((( in 2(11/ !/((( in 2(12/ and 4(/((( in 2(13. olumbia=s

pretax financial income for 2(1( is 2((/((( and the tax rate is 346

for all years. here are no deferred taxes at the beginning of 2(1(.olumbia expects to be profitable in the future.

I(&ru%&!o(

a7 ompute taxable income and income taxes payable for 2(1(.

b7 repare the Aournal entry to record income tax expense/

deferred income taxes/ and income taxes payable for 2(1(.





19-36 LO 3 Describe a temporary difference that results in future deductible amounts.

a

a




19-31

:e+erre* Ta, A((e& >No-Re%o"!&!o? % company should reduce a deferred tax asset if it is probable that

it .!ll o& real!@e some portion or all of the deferred tax asset.

Pro#a#leB means a le"el of li&elihood of at least slightly more

than ( percent.

LO 4 Explain the nonreco!nition of a deferred tax asset.




19-32

E19-1)4 allaway orp. has a deferred tax asset balance of

1(/((( at the end of 2(1( due to a single cumulati"e temporary

difference of 3#/(((. %t the end of 2(11 this same temporary

difference has increased to a cumulati"e amount of ((/(((.

axable income for 2(11 is $(/(((. he tax rate is 4(6 for all

years. :o "aluation account is in existence at the end of 2(1(.

I(&ru%&!o(

%ssuming that it is probable that 3(/((( of the deferred tax asset

will not be reali>ed/ prepare the Aournal entries re9uired for 2(11.





19-33





19-3)

Income tax

payable or

refundable

LO " Describe the presentation of income tax expense in the income statement.

I%ome S&a&eme& Pre(e&a&!oI%ome S&a&eme& Pre(e&a&!o

hange in

deferred income

tax

I%ome &a,

e,e(e or

#ee+!&- D

In the income statement or in the notes to the financial

statements/ a company should disclose the significant

components of income tax expense attributable to continuing

operations.

Formula &o Comu&e I%ome Ta, E,e(eIllu(&ra&!o 19-26



19-3 LO " Describe the presentation of income tax expense in the income statement.

I%ome S&a&eme& Pre(e&a&!oI%ome S&a&eme& Pre(e&a&!o

Bi"en the pre"ious information related to helsea Inc./helsea reports its income statement as follows.

Illu(&ra&!o 19-21



19-3

Ta,a#le &emorar/ *!++ere%e( - Deferred tax liability

:e*u%&!#le &emorar/ *!++ere%e( - Deferred tax %sset

Temorar/ :!++ere%e(

Se%!+!% :!++ere%e(Se%!+!% :!++ere%e(

Te,& Illu(&ra&!o 19-224

E,amle( o+ Temorar/ :!++ere%e(

LO # Describe $arious temporary and permanent differences.



19-3

Enter into pretax financial income but ne"er into taxable

income or

Enter into taxable income but ne"er into pretax financialincome.

%ffect only the period in which they occur.

Do not gi"e rise to future taxable or deductible amounts.

Te,& Illu(&ra&!o 19-2)4 E,amle( o+ Permae& :!++ere%e(

Se%!+!% :!++ere%e(Se%!+!% :!++ere%e(


Permae& :!++ere%e(



19-35

Do the following generate0

)uture Deductible %mount C Deferred ax %sset )uture axable %mount C Deferred ax ,iability ermanent Difference

1. %n accelerated depreciation system is used for tax purposes/

and the straight-line depreciation method is used for financialreporting purposes.

Fu&ureTa,a#le

Amou&

2. % landlord collects some rents in ad"ance. +ents recei"edare taxable in the period when they are recei"ed.

Fu&ure:e*u%&!#leAmou&

3. Expenses are incurred in obtaining tax-exempt income. Permae&:!++ere%e

4. osts of guarantees and warranties are estimated andaccrued for financial reporting purposes.


Se%!+!% :!++ere%e(Se%!+!% :!++ere%e(


E19-



19-39

. *ales of in"estments are accounted for by the accrual

method for financial reporting purposes and the installmentmethod for tax purposes.

Fu&ureTa,a#le

Amou&

!. Interest is recei"ed on an in"estment in tax-exemptgo"ernmental obligations.


#. Estimated losses on pending lawsuits and claims are accruedfor boo&s. hese losses are tax deductible in the period5s7when the related liabilities are settled.

Permae&:!++ere%e

Se%!+!% :!++ere%e(Se%!+!% :!++ere%e(


E19-

Do the following generate0

)uture Deductible %mount C Deferred ax %sset )uture axable %mount C Deferred ax ,iability ermanent Difference



19-)6

Permae& :!++ere%e(Permae& :!++ere%e(


E19-)4 ?a"aci ompany reports pretax financial income of $(/(((

for 2(1(. he following items cause taxable income to be different

than pretax financial income.

1. Depreciation on the tax return is greater than depreciation on

the income statement by 1!/(((.

2. +ent collected on the tax return is greater than rent earned on

the income statement by 2#/(((.

3. )ines for pollution appear as an expense of 11/((( on the

income statement.

?a"aci=s tax rate is 3(6 for all years/ and the company expects to

report taxable income in all future years. here are no deferred taxes

at the beginning of 2(1(.



19-)1

Permae& :!++ere%e(Permae& :!++ere%e(




19-)2

% company must consider presently enacted changes in the tax

rate that become effecti"e for a particular future year5s7 when

determining the tax rate to apply to existing temporary

differences.

Re'!(!o o+ Fu&ure Ta, Ra&e(

hen a change in the tax rate is enacted/ companies should

record its effect on the existing deferred income tax accounts

immediately.

Fu&ure &a, Ra&e(

Ta, Ra&e Co(!*era&!o(Ta, Ra&e Co(!*era&!o(

LO % Explain the effect of $arious tax rates and tax

rate chan!es on deferred income taxes.



19-)3

Ne& oera&!" lo(( >NOL? C tax-deductible expensesexceed taxable re"enues.

ax laws permit taxpayers to use the losses of one year to

offset the profits of other years 5%arr/#a%8 and%arr/+or.ar*7.

A%%ou&!" +or Ne& Oera&!" Lo((e(A%%ou&!" +or Ne& Oera&!" Lo((e(

LO & 'pply accountin! procedures for a loss carrybac( and a loss carryforward .



19-))

Lo(( Carr/#a%8


@ac& 2 years and forward 2( years.

,osses must be applied to earliest year first.

Illu(&ra&!o 19-29




19-)

Lo(( Carr/+or.ar* ay elect to forgo loss carrybac& and

arryforward losses 2( years.



Illu(&ra&!o 19-36



19-)

7E19-124 onlin orporation had the following tax information.


In 2(11 onlin suffered a net operating loss of 4$(/(((/

which it elected to carry bac&. he 2(11 enacted tax rate is2'6. repare onlin=s entry to record the effect of the loss

carrybac&.




19-)


144/(((




19-)5

E19-124 Fournal Entry for 2(11


Income tax refund recei"able 144/(((

@enefit due to loss carrybac& 144/(((




19-)9


7E19-134 +ode Inc. incurred a net operating loss of ((/(((in 2(1(. ombined income for 2(($ and 2((' was 3(/(((.

he tax rate for all years is 4(6. +ode elects the carrybac&

option. repare the Aournal entries to record the benefits of the

loss carrybac& and the loss carryforward.




19-6





19-1

E19-134 Fournal Entries for 2(1(


Income tax refund recei"able 14(/(((

@enefit due to loss carrybac& 14(/(((

Deferred tax asset!(/(((

@enefit due to loss carryforward !(/(((




19-2



7E19-1)4 Gse the information for +ode Inc. gi"en in @E1'-13. %ssume that it is more li&ely than not that the entire net

operating loss carryforward will not be reali>ed in future years.

repare all the Aournal entries necessary at the end of 2(1(.



19-3

E19-1)4 Fournal Entries for 2(1(





19-)

hether the company will reali>e a deferred tax asset depends onwhether (u++!%!e& &a,a#le !%ome e,!(&( or .!ll e,!(& within the

carryforward period.

Valua&!o Allo.a%e Re'!(!&e*Valua&!o Allo.a%e Re'!(!&e*

Te,& Illu(&ra&!o 19-34 ossible *ources of axable Income

o the extent that it is o& ro#a#le that taxable profit will be

a"ailable against which the unused tax losses or unused tax

credits can be utili>ed/ the deferred tax asset is not recogni>ed.




19-

S&a&eme& o+ F!a%!al Po(!&!o

F!a%!al S&a&eme& Pre(e&a&!oF!a%!al S&a&eme& Pre(e&a&!o

he net deferred tax asset or net deferred tax liability is reported

in the o-%urre& (e%&!o of the statement of financial position.

LO )

Illu(&ra&!o 19-35



19-

I%ome S&a&eme&


LO ) Describe the presentation of income taxes in financial statements.

ompanies allocate income tax expense 5or benefit7 to

continuing operations/

discontinued operations/ other comprehensi"e income/ and

prior period adAustments.



19-

I%ome S&a&eme&I%ome S&a&eme&

Comoe&( o+ !%ome &a, e,e(e >#ee+!&? may include01. urrent tax expense 5benefit7.

2. %ny adAustments recogni>ed in the period for current tax of prior

periods.

3. %mount of deferred tax expense 5benefit7 relating to theorigination and re"ersal of temporary differences.

4. %mount of deferred tax expense 5benefit7 relating to changes in

tax rates or the imposition of new taxes.

. %mount of the benefit arising from a pre"iously unrecogni>ed

tax loss/ tax credit/ or temporary difference of a prior period that

is used to reduce current and deferred tax expense.

LO )



19-5

Ta, Re%o%!l!a&!o


LO ) Describe the presentation of income taxes in financial statements.

ompanies either pro"ide0

% numerical reconciliation between tax expense 5benefit7

and the product of accounting profit multiplied by the

applicable tax rate5s7/ disclosing also the basis on which

the applicable tax rate5s7 is 5are7 computedH or

% numerical reconciliation between the a"erage effecti"e

tax rate and the applicable tax rate/ disclosing also thebasis on which the applicable tax rate is computed.



19-9

Re'!e. o+ &0e A((e&-L!a#!l!&/ Me&0o*Re'!e. o+ &0e A((e&-L!a#!l!&/ Me&0o*

ompanies apply the following basic principles0

LO 1* Indicate the basic principles of the assetliability method.

Illu(&ra&!o 19-)2



19-6

Re'!e. o+ &0e A((e&-L!a#!l!&/ Me&0o*Re'!e. o+ &0e A((e&-L!a#!l!&/ Me&0o*

LO 1* Indicate the basic principles of the assetliability method.

Illu(&ra&!o 19-)3

Pro%e*ure( +or Comu&!"a* Reor&!" :e+erre*I%ome Ta,e(



19-1

G.*. B%% classifies deferred taxes based on the classification of the

asset or liability to which it relates. he classification of deferred taxesunder I)+* is always non-current.

G.*. B%% uses an impairment approach for deferred tax assets. In this

approach/ the deferred tax asset is recogni>ed in full. It is then reduced

by a "aluation account if it is more li&ely than not that all or a portion of

the deferred tax asset will not be reali>ed. Gnder I)+*/ an affirmati"e

Audgment approach is used/ by which a deferred tax asset is recogni>ed

up to the amount that is probable to be reali>ed.



19-2

)or G.*. B%%/ the enacted tax rate must be used. I)+* uses the

enacted tax rate or substantially enacted tax rate. 5;*ubstantially

enacted< means "irtually certain.7

he tax effects related to certain items are reported in e9uity under

I)+*. hat is not the case under G.*. B%%/ which charges or credits

the tax effects to income.

G.*. B%% re9uires companies to assess the li&elihood of uncertain

tax positions being sustainable upon audit. otential liabilities must be

accrued and disclosed if the position is ;more li&ely than not< to be

disallowed. Gnder I)+*/ all potential liabilities must be recogni>ed.

ith respect to measurement/ I)+* uses an expected-"alue approach

to measure the tax liability/ which differs from G.*. B%%.



19-3

F!(%al =ear-2616 %llman ompany/ which began operations at the beginning of 2(1(/

produces "arious products on a contract basis. Each contract

generates a gross profit of $(/(((. *ome of %llman=s contracts

pro"ide for the customer to pay on an installment basis. Gnder these

contracts/ %llman collects one-fifth of the contract re"enue in each of

the following four years. )or financial reporting purposes/ the company

recogni>es gross profit in the year of completion 5accrual basis7H for tax

purposes/ %llman recogni>es gross profit in the year cash is collected

5installment basis7.

LO 11 +nderstand and apply the concepts and

procedures of interperiod tax allocation.



19-)

F!(%al =ear-2616resented below is information related to %llman=s operations for 2(1(.

1. In 2(1(/ the company completed se"en contracts that allow for the

customer to pay on an installment basis. %llman recogni>ed the related

gross profit of !(/((( for financial reporting purposes. It reported only112/((( of gross profit on installment sales on the 2(1( tax return. he

company expects future collections on the related installment

recei"ables to result in taxable amounts of 112/((( in each of the next

four years.

2. %t the beginning of 2(1(/ %llman ompany purchased depreciableassets with a cost of 4(/(((. )or financial reporting purposes/ %llman

depreciates these assets using the straight-line method o"er a six-year

ser"ice life. he following is the depreciation schedule for both financial

and tax purposes.

LO 11



19-

F!(%al =ear-2616

LO 11

3. he company warrants its product for two years from the date of

completion of a contract. During 2(1(/ the product warranty liabilityaccrued for financial reporting purposes was 2((/(((/ and the amount

paid for the satisfaction of warranty liability was 44/(((. %llman expects

to settle the remaining 1!/((( by expenditures of !/((( in 2(11 and

1((/((( in 2(12.



19-

F!(%al =ear-2616

LO 11

4. In 2(1( nontaxable municipal bond interest re"enue was 2$/(((.

. During 2(1( nondeductible fines and penalties of 2!/((( were paid.

!. retax financial income for 2(1( amounts to 412/(((.

#. ax rates enacted before the end of 2(1( were0

2(1( (6

2(11 and later years 4(6

$. he accounting period is the calendar year.

'. he company is expected to ha"e taxable income in all future years.



19-

Ta,a#le I%ome a* I%ome Ta, Pa/a#le-2616

LO 11

he first step is to determine %llman ompany=s income tax

payable for 2(1( by calculating its taxable income.

Illu(&ra&!o 19A-1

Illu(&ra&!o 19A-2



19-5

:e+erre* I%ome Ta,e( E* o+ 2616

LO 11

Illu(&ra&!o 19A-3

Illu(&ra&!o 19A-)



19-9

:e+erre* Ta, E,e(e >7ee+!&? a* &0e ouralE&r/ &o Re%or* I%ome Ta,e( - 2616

LO 11

Illu(&ra&!o 19A-

omputation of Deferred ax Expense 5@enefit7/ 2(1(

omputation of :et Deferred ax Expense/ 2(1( Illu(&ra&!o 19A-



19-6

:e+erre* Ta, E,e(e >7ee+!&? a* &0e ouralE&r/ &o Re%or* I%ome Ta,e( - 2616

LO 11

Illu(&ra&!o 19A-

omputation of otal Income ax Expense/ 2(1(

Fournal Entry for Income ax Expense/ 2(1(

Income ax Expense 1#4/(((

Deferred ax %sset !2/4((

Income ax ayable (/(((

Deferred ax ,iability 1$!/4((



19-1

ompanies should classify deferred tax assets and liabilities as

current and noncurrent on the balance sheet based on the

classifications of related assets and liabilities.

F!a%!al S&a&eme& Pre(e&a&!o - 2616

LO 11

Illu(&ra&!o 19A-5



19-2

*tatement of )inancial osition 2(1(

F!a%!al S&a&eme& Pre(e&a&!o - 2616

LO 11

Illu(&ra&!o 19A-9

Illu(&ra&!o 19A-16

Income *tatement 2(1(

C ! 0



opyright J 2(11 Fohn iley K *ons/ Inc. %ll rights reser"ed.+eproduction or translation of this wor& beyond that permitted in

*ection 11# of the 1'#! Gnited *tates opyright %ct without the

express written permission of the copyright owner is unlawful.

+e9uest for further information should be addressed to theermissions Department/ Fohn iley K *ons/ Inc. he purchaser

may ma&e bac&-up copies for hisLher own use only and not for

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errors/ omissions/ or damages/ caused by the use of theseprograms or from the use of the information contained herein.

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Kieso_Inter_Ch19 - IfRS (Inome Taxes)