Problem Solving Survival Guide for Intermediate Accounting, 15th Edition, Instructor's Manual: Volume II: Chapters 15-24

CHAPTER 19

ACCOUNTING FOR INCOME TAXES

OVERVIEW

Most revenue type transactions are taxable amounts (they increase taxable income) in some time period, and most expense type transactions are deductible amounts (they decrease taxable income) in some time period. Interperiod income tax allocation procedures are required when a revenue or expense item is reported on the tax return in one year but is reported on the income statement in a different time period. Thus, the income tax consequences of revenues and expenses are reflected on the income statement in the same year that the revenues and expenses are reported on the financial statements, regardless of the year when the revenues and expenses appear on the tax return (and, therefore, impact the amount of income taxes due for the entity). Accounting for income taxes in a manner that properly measures income tax expense and related liabilities and/or assets is the subject of this chapter.

SUMMARY OF LEARNING OBJECTIVES

  1. Identify differences between pretax financial income and taxable income. Companies compute pretax financial income (or income for book purposes) in accordance with generally accepted accounting principles. They compute taxable income (or income for tax purposes) in accordance with prescribed tax regulations. Because tax regulations and GAAP differ in many ways, so frequently do pretax financial income and taxable income. Differences may exist, for example, in the timing of revenue recognition and the timing of ...