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ACC 232: EXAM 2
Deferred Tax Asset
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results in future deductible amounts
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Deferred Tax Liability
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results in future taxable amounts
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Permanent Difference
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Accounting transaction that the company reports for book purposes but cant report for tax purposes. Tax-exempt
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Pretax Financial Income
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Financial Reporting Term, referred to as income before taxes. GAAP, listed as expense
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Taxable income
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tax accounting term, indicates the amount used to compute income taxes payable, tax reporting- listed as payable
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Temporary Difference
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Tax Basis of Asset- Reported Amount
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Current Tax Expense
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amount of income taxes payable for the period
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Deferred Tax Expense
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increase in the deferred tax liability balance from the beginning to the end of the accounting period
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Deferred tax benefit
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increase in deferred tax asset from the beginning to the end of the accounting period
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Net Operating Loss
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occurs for tax purposes in a year when tax-deductible expenses exceed taxable revenues
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Loss Carryback
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company may carry the net operating loss back two years and receive refunds for income taxes paid in those years
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Income that is not taxable
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municipal and state interest on bonds, life insurance proceeds
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Expenses that are not deductible
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life insurance premiums, fines and penalties, operating expenses of illegal activities
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Pension Plan
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an arrangement whereby an employer provides benefits to retired employees for services they provided in their working years
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Contributory Pension Plan
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employees bear part of the cost of the stated benefits or make payments to increase their benefits
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Noncontributory Pension Plans
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employer bears the entire cost
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Qualified Pension Plans
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permit deductibility of the employers contributions to the pension fund
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Defined Contribution Plan
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the employer agrees to contribute to a pension trust a certain sum each period
401 k plan
employer is not liable
usually turns over to an independent third-party trustee
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Defined Benefit Plan
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outlines the benefits that employees will receive when they retire
employer is liable
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Actuaries
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individuals trained through a long and rigorous certification program to assign probabilities to future events and their financial effects
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Vested Benefit Obligation
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companies compute by using vested benefits at their current salaries level
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Vested Benefits
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those that the employee is entitled to receive even if he or she renders no additional services to the company
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Accumulated benefit obligation
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A measurement of the pension obligation that computes the deferred compensation amount on all years of employees' service --both vested and non-vested-- using current salary levels.
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Projected Benefit Obligation
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bases the deferred compensation amount on both vested and non-vested service using future salaries
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Overfunded/Underfunded
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measured as the difference between the fair value of the plan assets and the projected benefit obligation
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Components of Pension Expense
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Service Cost
Interest on the Liability
Actual Return on Plan Assets
Amortization of Prior Service Cost
Gain or Loss
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service cost
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the actuarial present value of benefits attributed by the pension benefit formula to employee service during the period
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Interest on the Liability
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we use a discount rate to determine the future liability, and we add interest costs at that rate times the future pension benefit
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Actual Return on Plan Assets
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increase in pension funds from interest, dividends, and realized and unrealized changes in the fair value of the plan assets
(End. Balance-Beg. Balance)-(Contributions-Benefits Paid)
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Amortization of Prior Service Cost
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allocates the cost of providing these retroactive benefit to pension expense in the future, specifically to the remaining service years of the affected employees
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Gain or Loss
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difference between the actual return and the expected return on plan assets
amortization of the net gain or loss from previous periods
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Pension Worksheet
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Annual Pension Expense
Cash
Prior Service Costs
Gain/Loss
Pension Asset/Liability
Projected Benefit Obligation
Plan Assets
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