Answered: Future Years 2017 2018 2019 2020 2021…

Future Years 2017 2018 2019 2020 2021 Taxable income $850,000 $375,000 (2,400,000) Taxable amounts $375,000 $375,000 $375,000 Deductible amounts Enacted tax rate 50% 45% 40% 35% 30%

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter13: Tax Credits And Payment Procedures

Section: Chapter Questions

Problem 25P: LO.2 Oak Corporation has the following general business credit carryovers. If the general business...

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Question

(Explain Future Taxable and Deductible Amounts, How Carryback and Carryforward Affects Deferred Taxes) Maria Rodriquez and Lynette Kingston are discussing accounting for income taxes. They are currently studying a schedule of taxable and deductible amounts that will arise in the future as a result of existing temporary differences. The schedule is as follows.

Check the following image for schedule.

Instructions
(a) Explain the concept of future taxable amounts and future deductible amounts as illustrated in the schedule.
(b) How do the carryback and carryforward provisions affect the reporting of deferred tax assets and deferred tax liabilities?

Future Years
2017
2018
2019
2020
2021
Taxable income
$850,000
$375,000
(2,400,000)
Taxable amounts
$375,000
$375,000
$375,000
Deductible amounts
Enacted tax rate
50%
45%
40%
35%
30%

Definition Definition Estimated future tax made while preparing accounts. Deferred tax is estimated based on past and present transactions from financial statements. It is not the actual tax that needs to be paid or is refundable from the revenue authority; it is an accounting entry. It is necessary to account for deferred tax due to difference between accounting profits and taxable profits.

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