Intermediate Accounting, 15th Edition

CHAPTER 19 Accounting for Income Taxes

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

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 purpose of a deferred tax asset valuation allowance.
5. Describe the presentation of income tax expense in the income statement.
6. Describe various temporary and permanent differences.
7. Explain the effect of various tax rates and tax rate changes on deferred income taxes.
8. Apply accounting procedures for a loss carryback and a loss carryforward.
9. Describe the presentation of deferred income taxes in financial statements.
10. Indicate the basic principles of the asset-liability method.

How Much Is Enough?

In the wake of the economic downturn due to the financial crisis, a number of companies and numerous banks reported operating losses. As you will learn in this chapter, the tax code allows companies that report operating losses to claim a tax credit related to these losses for taxes paid in the past (referred to as “carrybacks”) and to offset taxable income in periods following the operating loss (referred to as “carryforwards”). When companies use these offsets, they reduce income tax expense, which increases net income. For tax carryforwards, companies also record a deferred tax asset, which measures the expected future net cash inflows from lower ...