MGMT 35100 1st Edition Lecture 9Last Lecture I. Accounting Income vs. Taxable Income II. Permanent Differences III. Temporary Differences IV. Deferred Taxes – Liability and Assets Current Lecture Outline I. Allowance for Deferred Tax Asset II. Loss CarryoversCurrent LectureHP 16-2 1. 2014 2015 2016 TxI = $428k $485k $393kI/Tx/Pay $149.8k $145.5k $117.9k400k-22k+50k=428k Def Tax 2. | '15 '16 '17 after ‘17 | A TD: Dep. | 4k 5k 6k 7k | - 6.6kRoyalty | (30k) (20K) | 15k - balance 15k 6.6k2014: I/Tx/Exp 141.4k Def Tx A 15kI/Tx/Pay 149.8kDef Tx L 6.6k3. 2014 I/S: I/Tx/Exp: Current 149.8k Deferred (8.4k) 141.4k2014 B/S: - current: Def Tax A 9kThese 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.Def Tax L 0- noncurrent: Def Tax A 6k Def Tax L 6.6k4. Def Tax | '16 '17 after ‘17 | A L TD: Dep. | 14k 16k 17k | - 14.1kRoyalty | (90k) (20k) - | 33k - balance 33k 14.1k2015: I/Tx/Exp 135.5k Def Tx A 18kI/Tx/Pay 145.5kDef Tx L 7.5k2015 I/S: I/Tx/Exp: Current 145.5k Deferred (10.5k) 135.5k2015 B/S: - current: Def Tax A 27kDef Tax L -0- - noncurrent: Def Tax A 6k Def Tax L 14.1k Def Tax | '17 After ‘17 | A L TD: Dep. | 25k 59k | - 25.2kRoyalty | (36k) (4k) | 12k - balance 12k 25.2k2016: I/Tx/Exp 150k I/Tx/Pay 117.9kDef Tx A 21kDef Tx L 11.1k2016 I/S: I/Tx/Exp: Current 117.9k Deferred 32.1k 150k2016 B/S: - current: Def Tax A 10.8kDef Tax L -0- - noncurrent: Def Tax A 1.2k Def Tax L 25.2kLecture: Allowance for deferred Tax Asset-When it is more than likely than not (more than 50% likely) that all or a part of future deductible amount (Def Tax Asset) will not be realized in the future All. For Def Tax Asset (a contra account to Def Tax Asset) is required. E16-30 1. Def Tx Asset = $48k 120k*.4I/Tx/Exp xx Def Tx Asset 48kI/Tx/Pay xxBal. SheetDef Tax Asset: - current 9.6k (20% of 48k)- noncurrent 38.4k (80% of 48k)2. Allowance for Def Tx A = $14.4k I/Tx/Exp xxDef Tx Asset 48kI/Tx/Pay xxAllow. for Def Tx A 14.4k (30% of 48k)Bal. SheetCurrent Assets: Def Tax Asset 9.6k- Allow. (2,880) 6,720Noncurr. Assets: Def Tax Asset 38.4k- Allow. (11,520) 26,880Lecture: Loss Carryovers: tax law gives a benefit to the company - NOL= Tax Rev < Tax Deductible Expenses- Back 2 years, and forward 20 years from current year, so total 22 years- For 2 year back – refund receivable/ 20 year forward- deferred tax asset P16-52 NOL Carryovers ‘11 ’12 ’13 ’14 | ’15 TxInc(Loss): 33.1k 22.5k | (94.3k)1. Tax Refund for CB = $20,890 12/31/15I/Tx Ref Rec. 20,890I/Tx Benefit--Loss CB 20,890(or I/Tax/Exp)2. Tax Benefit from Loss CF = $38.7k Def Tax A = $11,610 = (38.7k)(assume: 30%)Def Tx Asset 11,610I/Tx Benefit--Loss CF 11,610(or I/Tx/exp)Q: What if unlikely to be realized?I/Tax/Exp 11,610Def Tx Asset 11,610I/Tx Benefit--Loss CF 11,610(or I/Tx/exp)Allow. For Def Tax A 11,6103.a ‘11 ’12 ’13 ’14 | ’15 TxI(loss): | (39k)Tax Refund for CB = $15,246 I/Tx Ref Rec. 15,246I/Tx Benefit--Loss CB 15,2463.b ‘11 ’12 ’13 ’14 | ’15 ’16 TxI(loss): 33.1k 22.5k | (39k) (28k)\Loss CB at end of 2016 = $16.6k Tax Refund Rec. = $5,644 2016 Loss available after CB = 11.4k12/31/16I/Tx Ref Rec. 5,644 Def Tx Asset 3,420* I/Tx/Ben. – Loss CB 5,644 I/Tx/Ben. – Loss CF 3,420* (11.4k)(assume: