1.
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.
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.
To explain: How might many companies also report higher assets as a result of GAAP for postretirement plans
2.
To explain: Thelimitation of discounting
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- LO 12.5An employee and employer cost-share pension plan contributions and health insurance premium payments. If the employee covers 35% of the pension plan contribution and 25% of the health insurance premium, what would be the employee’s total benefits responsibility if the total pension contribution was $900, and the health insurance premium was $375? Include the journal entry representing the payroll benefits accumulation for the employer in the month of February.arrow_forwardrr.17 Clark Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to: 1.3% × Service years × Final year’s salary Stanley Mills was hired by Clark at the beginning of 2005. Mills is expected to retire at the end of 2049 after 45 years of service. His retirement is expected to span 15 years. At the end of 2024, 20 years after being hired, his salary is $96,000. The company’s actuary projects Mills’s salary to be $430,000 at retirement. The actuary’s discount rate is 6%. For all requirements, round final answers to the nearest whole dollars. Do not round intermediate calculations. Use Excel, or a financial calculator. Required: Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2024.arrow_forwardP20.5 (LO4) (Computation of Pension Expense, Journal Entries for 3 Years) Hiatt Toothpaste SA initiates a defined benefit pension plan for its 50 employees on January 1, 2019. The insurance company which administers the pension plan provided the following selected information for the years 2019, 2020, and 2021. For Year Ended December 31, 2019 2020 2021 Plan assets (fair value) €50,000 € 85,000 €180,000 Vested benefit obligation 45,000 165,000 292,000 Defined benefit obligation 60,000 200,000 324,000 Net (gain) loss –0– 78,900 5,800 Employer's funding contribution (made at end of year) 50,000 60,000 105,000 There were no balances as of January 1, 2019, when the plan was initiated. The actual return on plan assets was 10% over the 3-year period, but the discount (interest) rate was 13% in 2019, 11% in 2020, and 8% in 2021. The service cost component of net periodic pension expense amounted to the following: 2019, €60,000; 2020, €85,000; and 2021, €119,000. No…arrow_forward
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