Temporary Difference
Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods. Consequently the difference between the amount of assets and liabilities reported in the financial reports and the amount of assets and liabilities as per the company’s tax records, is known as temporary difference.
Deferred tax account shows the amount of reconciliation, which occurs due to the difference between the income tax expense account and the income tax payable account.
When the Income Tax Expense account i.e. the estimated income tax amount is more than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be debited to Deferred Tax Asset account.
When the Income Tax Expense account i.e. the estimated income tax amount is less than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be credited to Deferred Tax Liability account.
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INT. ACCOUNTING<CUSTOM>W/CONNECT 2-YEA
- LO.5 Beige Corporation has a fiscal year ending April 30. For the year ending April 30, 2018, Beige generated taxable income of 1,200,000. What is Beige Corporations tax liability for this period?arrow_forwardReview Examples 50 and 52 (Section 1231 Computations) in the text. In both examples, the taxpayer's AGI is $129,400 even though in Example 52 there is $700 of nonrecaptured § 1231 loss from 2018. As part of the § 1231 lookback provision any net gain is______(either added to or offset against) any ______(either, nonrecaptured net § 1231 losses or recaptured net § 1231 losses) from the______ (either two three or five) prior tax years. Therefore, the $700 from 2018 results in part of the 2019 net § 1231 gain to be treated as_______(either a capital gain a nontaxable gain or ordinary income) Please fill in the blanks?arrow_forwardvn.2 At the end of the year, the deferred tax asset account had a balance of $8 million attributable to a temporary difference of $32 million in a liability for estimated expenses. Taxable income is $88 million. No temporary differences existed at the beginning of the year, and the tax rate is 25%.Prepare the journal entry(s) to record income taxes, assuming it is more likely than not that three-fourths of the deferred tax asset will not ultimately be realized.arrow_forward
- 1. In 2022, Dunder Mifflin Inc. had one temporary difference of $398 that resulted in a deferred tax asset. Dunder Mifflin's taxable income is $1098 in 2022 and its tax rate is 30%. The company had no prior deferred tax balance. Which of these will be included in Dunder Mifflin's journal entry at the end of 2022? Choose the closest answer. a. A credit to Deferred Tax Asset for $119.40 b. A credit to Deferred Tax Asset for $398.00 c. A credit to Income Tax Payable for $329.40 d. A credit to Income Tax Payable for $210.00arrow_forwardMa3. All final answers, unless otherwise indicated, have been rounded to the nearest $10. Also, assume that each question is independent of any other question. please answer questions using tax rules in effect for the year 2021, but ignoring temporary Covid-10 related changes. 8. During the year, Dan Davis, a single taxpayer, pays $2,200 of interest on a qualified student loan. Assume that Dan has adjusted gross income of $65,000. What student loan interest deduction may Dan claim on his Form 1040 for the year? A. $2,500 B. 2,200 C. 1,100 D. 0 E. None of the above 9. A contribution made to which of the listed entities is not deductible? A. Boy Scouts of America B. Oxford University, England C. Virginia Commonwealth University D. Society for the Prevention of Cruelty to Animals E. All of the above are deductiblearrow_forwardLO.3,7 Benton Company (BC), a calendar year entity, has one owner, who is in the 37% Federal income tax bracket (any net capital gains or dividends would be taxed at a 20% rate). BC’s gross income is $395,000, and its ordinary trade or business deductions are $245,000. Compute the Federal income tax liability on BC’s income for the current year under the following assumptions. Ignore the standard deduction (or itemized deductions) and the deduction for qualified business income. a. BC is operated as a proprietorship, and the owner withdraws $100,000 for personal use. b. BC is operated as a corporation, pays out $100,000 as salary, and pays no dividends to its shareholder. c. BC is operated as a corporation and pays out no salary or dividends to its shareholder. d. BC is operated as a corporation, pays out $100,000 as salary to its shareholder, and pays out the remainder of its earnings as dividends. e. Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is the owner of…arrow_forward
- 13. Pinnacle West operates in an industry for which NOL carryback is not allowed, and had the following pretax income (loss) over its first three years of operations 2019 $ 1,200,000 2020 (900,000 ) 2021 1,500,000 For each year there were no deferred income taxes and the tax rate was 25%. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2020. What was Pinnacle West's income tax expense in 2021? Multiple Choice 240,000. 160,000. 375,000 480,000.arrow_forward[8:50 PM, 2/23/2022] Veron Walker Uwi: Grace Corporation's pretax financial income is $600,000 and taxable income is $550,000 for year 2020.Its beginning deferred tax liability account has a balance of $75,000. Its cumulative temporarydifferences for year-end 2020 is equal to $300,000 and will reverse and result in taxable amounts as follows: Year Taxable Amount2021 $100,0002022 $ 75,0002023 $125,000The tax rate is 30% for all years.[8:50 PM, 2/23/2022] Veron Walker Uwi: Required:(i) Calculate the taxes payable for the year 2020(ii) Calculate the deferred tax liability for the year 2020(iii) Calculate the total tax expense for 2020(iv) Prepare the journal entry to record the tax expense for 2020(v) Prepare the income statement presentation of the tax amounarrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT