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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Intel-period Tax Allocation

Chris Green, CPA, is auditing Rayne Co.’s 2019 financial statements. For the year ended December 31, 2019, Rayne is applying GAAP for income taxes. Rayne’s controller, Dunn, has prepared a schedule of all differences between financial statement and income tax return income. Dunn believes that as a result of pending legislation, the enacted tax rate at December 31, 2019, will be increased for 2020. Dunn is uncertain which differences to include and which rates to apply in computing deferred taxes. Dunn has requested an overview of GAAP from Green.

Required:

Prepare a brief memo to Dunn from Green that identifies the objectives of accounting for income taxes, defines temporary differences, explains how to measure deferred tax assets and liabilities, and explains how to measure deferred income tax expense or benefit.

To determine

Write a memo to Person D from Person G that states the objectives of accounting for income taxes, defines temporary differences and explains the manner to measure deferred tax assets and liabilities, and deferred income tax expense or benefit.

Explanation

Memo

From,

Person G

To,

Person D

Subject: Accounting for income taxes

  • The two goals (objectives) of accounting for income taxes are as follows:
  • A business entity has to recognize the amount of income tax payable (refund) for the current year.
  • A business entity has to record the deferred tax assets and liabilities for the future tax concerns of all events that have been reported in its financial statements for income tax return.
  • Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods...

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