Chapter 17 Accounting for Income Taxes

1. (LO
1) Identify some of the reasons why accounting for income taxes is complex.

2. (LO 1) True or False: ASC
740 applies to all taxes paid by a corporation.
Explain.

3. (LO
1) True or False: ASC 740 is the sole source for the rules that apply to
accounting for income taxes. Explain.

4. (LO
1) How does the fact that most corporations file their financial statements
several months before they file their income tax returns complicate the income
tax provision process?

5. (LO 1) What
distinguishes an income tax from
other taxes?

6. (LO
1)Briefly describe the six step process by which a company computes its
income tax provision.

7. (LO
2) What are the two components of a company’s income tax provision? What does each component represent about a
company’s income tax provision?

8. (LO
2) True or False: All differences between book and taxable income, both
permanent and temporary, affect a company’s effective tax rate. Explain.

9. (LO
2) When does a temporary difference resulting from an expense (deduction)
create a taxable temporary difference? A
deductible temporary difference?

10. (LO
2) When does a temporary difference resulting from income create a taxable
temporary difference? A deductible
temporary difference?

11. (LO
2) Briefly describe what is meant by the asset and liability or balance sheet approach taken by ASC 740
with respect to computing a corporation’s deferred tax provision.

12. (LO
2) Why are cumulatively favorable temporary differences referred to as
taxable temporary differences?

13. (LO
2) Why are cumulatively unfavorable temporary differences referred to as
deductible temporary differences?

14. ([LO
2) In addition to the current year tax return taxes payable or refundable,
what other transactions can affect a company’s current income tax provision?

15. (LO
2, 4) What is an unrecognized tax benefit and how does it affect a
company’s current income tax expense?

16. (LO
2) True or False: When Congress changes the corporate tax rates, only the
current year book-tax temporary differences are measured using the new
rates. Explain.

17. (LO
2) True or False: All temporary differences have a financial accounting
basis. Explain.

18. (LO 3) What is the
purpose behind a valuation allowance as it applies to deferred tax assets?

19. (LO
3)What is the difference between recognition
and realization as it applies to the
recording of a deferred tax asset on a balance sheet?

20. (LO
3) Briefly describe the four sources of taxable income a company evaluates
in determining if a valuation allowance is necessary.

21. (LO
3) Which of the four sources of taxable income are considered objective and
which are considered subjective? Which
of these sources generally receives the most weight in analyzing whether a
valuation allowance is necessary?

22. (LO
3) What are the elements that define a tax planning strategy as it applies
to determining if a valuation allowance is necessary? Provide an example where a tax planning
strategy may be necessary to avoid recording a valuation allowance.

23. (LO 3) When does a
company remove a valuation allowance from its balance sheet?

24. (LO
3) What is a company’s book
equivalent of taxable income and how does this computation enter into the
income tax provision process?

25. (LO
4) What motivated the FASB to issue FIN 48?

26. (LO
4) Briefly describe the two step process a company must undertake when it
evaluates whether it can record the tax benefit from an uncertain tax position
under ASC 740.

27. (LO
4) Distinguish between recognition
and measurement as they relate to the
computation of unrecognized tax benefits under ASC 740.

28. (LO
4) What is a tax positionas it relates to the application of ASC
740 to uncertain tax positions?

29. (LO
4) True or False: A company determines its unrecognized tax benefits with
respect to a transaction only at the time the transaction takes place;
subsequent events are ignored. Explain.

30. (LO
4) True or False: ASC 740 requires that a company treat potential interest
and penalties related to an unrecognized tax benefit as part of its income tax
provision. Explain.