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Concept Introduction:
Deferred tax arises out of the temporary difference between the tax income and accounting income.
When the difference results in reducing the tax payments in the future years, this generates
Permanent and temporary differences:
Permanent differences between the accounting income and tax income arise when the difference is not reversed in future years.For example taxes exempt from income tax which are included in accounting income result in permanent difference.
Temporary difference arises when there are only timing differences and the impact of which will be reversed in future years.
The amount of taxes by the company in the three given years
b
Concept Introduction:
Deferred tax Asset and liabilities:
Deferred tax arises out of the temporary difference between the tax income and accounting income.
When the difference results in reducing the tax payments in the future years, this generates deferred tax assets. However, if the differences result in increasing the future tax payments, deferred tax liability is generated.
Permanent and temporary differences:
Permanent differences between the accounting income and tax income arise when the difference is not reversed in future years.For example, taxes exempt from income tax which are included in accounting income result in permanent difference.
Temporary difference arises when there are only timing differences and the impact of which will be reversed in future years.
The balance in deferred tax at the end of each year.
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Chapter 10 Solutions
Financial Accounting: The Impact on Decision Makers
- Deferred Tax Assets. Components of the deferred tax asset of Biosante Pharmaceuticals, Inc., are shown in Exhibit 2.14. The company had no deferred tax liabilities. REQUIRED a. At the end of 2008, the largest deferred tax asset is for net operating loss carryforwards. (Net operating loss carryforwards [also referred to as tax loss carryforwards] are amounts reported as taxable losses on tax filings. Because the tax authorities generally do not pay corporations for incurring losses, companies are allowed to carry forward taxable losses to future years to offset taxable income. These future tax benefits give rise to deferred tax assets.) As of the end of 2008, what is the dollar amount of the companys net operating loss carryforwards? What is the dollar amount of the deferred tax asset for the net operating loss carryforwards? Describe how these two amounts are related. b. Biosante has gross deferred tax assets of 28,946,363. However, the net deferred tax assets balance is zero. Explain. c. The valuation allowance for the deferred tax asset increased from 21,818,084 to 28,946,363 between 2007 and 2008. How did this change affect the company's net income?arrow_forwardUncertain Tax Position At the end of the current year, Boyd Company claims a 200,000 tax credit on its income tax return. Boyd is uncertain whether the IRS will accept this credit. It studies the IRS regulations and determines that it is more likely than not that the IRS will accept all or some of this tax credit. Based on this research, Boyd estimates the following probability distribution of possible outcomes: Required: For the current year, determine (1) the amount that Boyd will recognize as a current tax benefit and (2) the amount that it will record as the unrecognized tax benefit.arrow_forwardIn the current year, Madison Corporation had 50,000 of taxable income at a tax rate of 25%. During the year, Madison began offering warranties on its products and has a Warranty liability for financial reporting purposes of 5,000 at the end of the year. Warranty expenses are not deductible until paid for income tax purposes. Prepare the journal entry to record Madisons income taxes at the end of the year.arrow_forward
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