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Purdue MGMT 35100 - Accounting vs Taxable Income

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MGMT 351 1st Edition Lecture 8Income TaxesLast Lecture I. Leases Cont’d Current Lecture Outline I. Accounting income vs. Taxable Income II.Current LectureI. Accounting Income vs. Taxable Incomea. Tax accounting is largely cash-based, with some exceptions, while financial accounting is accrual based b. Taxable Income= taxable revenues-deductible expensesc. Pretax Acc. Income= Revs. Realized – Exps. Accrued i. Three main reasons there’s a difference1. PDs- permanent differences a. Affect only one period, no inter-period tax allocation, ne Deferred Taxes; either in Financial accounting only, or tax accounting only; not both b. Deferred Taxes: postponing the tax payment i. Revenues for accounting but not for tax1. Interest income on tax-exempt state/government bonds 2. Life insurance proceeds 3. Up to 80% of dividend income ii. In Tax Income not Acc. 1. Dividend income beyond 80% limitiii. Expenses for Accounting and Not Tax (can not deduct for tax)1. Fines and penalties 2. Charitable contributions 3. Life insurance premiumThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.iv. In Tax not Acc1. NOL deductions 2. TDs- Temporary differences a. These are just about timing, and eventually there will be no difference b. Effect at least 2 years by nature 3. Net Operating Losses (NOL) carryovers over time II. Reconciliation of Income a. Pretax Acc. Income b. +/- PDsc. +/- TDsd. –NOL Carryovers e. Tax Income f. I/Tx/Payableg. +/- Change in Deferred Tax Asset or Liability or both h. I/Tx/ExpIII. Deferred Taxes a. Reduces Tax income this year  future taxable amount  more future taxes  increasing Def. Tax Liab this year b. Increasing Tax income this year  future deductible amount  less future taxes  increasing def tax asset this year IV. Deferred Tax Asset: like prepaid tax/ DTL: like an unpaid tax – presented on balance sheet this year HP16-11. 2014 Pretax AI $100kPD: Fine 3kI/Rev on muni.bonds -4kTD: Wty. exp. 2kConstruc. profits -9kD/Exp -10kLoss carryover ---- TxI $82k2. Def Tax | Future Years | A LTD: FDA (wtyexp) | 2k(.4)- rate for future |FTA (cons. profit) | 9k(.4) |FTA (depexp) | 10k(.4) | Balance $800 $7.6k3. I/Tx/Exp 39600Def Tax Asset 800I/Tx/Pay 32800  82000* .4Def Tax Liab 76004. 2014 I/S: Income before ITx $ 100kLess: Income tax: Current 32800 Deferred (net) 6800 -39600 NI $60.400B/S: Def Tax A: Current Noncurrent we only know total: 800Def Tax L: Current Noncurrent same thing: 7600or Offset Curr. DefTx A ~ Curr. DefTx L and report only the net amount. Do the same for Noncurr. DefTx A &DefTx L.5. I/Tx/Exp 41,200Def Tax Asset 800I/Tx/Pay 32800Def Tax Liab 7600Allow. For Det Tax Asset


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