After studying this chapter, you should be able to:

  1. 1 Identify differences between pretax financial income and taxable income.
  2. 2 Describe a temporary difference that results in future taxable amounts.
  3. 3 Describe a temporary difference that results in future deductible amounts.
  4. 4 Explain the non-recognition of a deferred tax asset.
  5. 5 Describe the presentation of income tax expense in the income statement.
  6. 6 Describe various temporary and permanent differences.
  7. 7 Explain the effect of various tax rates and tax rate changes on deferred income taxes.
  8. 8 Apply accounting procedures for a loss carryback and a loss carry-forward.
  9. 9 Describe the presentation of income taxes in financial statements.
  10. 10 Indicate the basic principles of the asset-liability method.

Safe (Tax) Haven?

One set of costs that companies manage are those related to taxes. In fact, in today's competitive markets, managers are expected to look for places in the tax code that a company can exploit to pay less tax to various tax authorities. By paying less in taxes, companies have more cash available to fund operations, finance expansion, and create new jobs. What happens, though, when companies push the tax-saving envelope? Well, they may face a tax audit, the results of which could hurt their financial statements.

A notable example of corporate maneuvering to reduce taxable income involved Limited ...

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