Elbie Antonites, CFA

Michael A. Broihahn, CFA


After completing this chapter, you will be able to do the following:

  • describe the differences between accounting profit and taxable income, and define key terms, including deferred tax assets, deferred tax liabilities, valuation allowance, taxes payable, and income tax expense;
  • explain how deferred tax liabilities and assets are created and the factors that determine how a company's deferred tax liabilities and assets should be treated for the purposes of financial analysis;
  • calculate the tax base of a company's assets and liabilities;
  • calculate income tax expense, income taxes payable, deferred tax assets, and deferred tax liabilities, and calculate and interpret the adjustment to the financial statements related to a change in the income tax rate;
  • evaluate the impact of tax rate changes on a company's financial statements and ratios;
  • distinguish between temporary and permanent differences in pre-tax accounting income and taxable income;
  • describe the valuation allowance for deferred tax assets—when it is required and what impact it has on financial statements;
  • compare a company's deferred tax items;
  • analyze disclosures relating to deferred tax items and the effective tax rate reconciliation, and explain how information included in these disclosures affects a company's financial statements and financial ratios;
  • identify the key provisions of and differences between income tax accounting under ...

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