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ACC 232: EXAM 2

Deferred Tax Asset
results in future deductible amounts
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Deferred Tax Liability
results in future taxable amounts
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Permanent Difference
Accounting transaction that the company reports for book purposes but cant report for tax purposes. Tax-exempt
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Pretax Financial Income
Financial Reporting Term, referred to as income before taxes. GAAP, listed as expense
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Taxable income
tax accounting term, indicates the amount used to compute income taxes payable, tax reporting- listed as payable
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Temporary Difference
Tax Basis of Asset- Reported Amount
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Current Tax Expense
amount of income taxes payable for the period
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Deferred Tax Expense
increase in the deferred tax liability balance from the beginning to the end of the accounting period
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Deferred tax benefit
increase in deferred tax asset from the beginning to the end of the accounting period
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Net Operating Loss
occurs for tax purposes in a year when tax-deductible expenses exceed taxable revenues
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Loss Carryback
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
municipal and state interest on bonds, life insurance proceeds
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Expenses that are not deductible
life insurance premiums, fines and penalties, operating expenses of illegal activities
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Pension Plan
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
employees bear part of the cost of the stated benefits or make payments to increase their benefits
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Noncontributory Pension Plans
employer bears the entire cost
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Qualified Pension Plans
permit deductibility of the employers contributions to the pension fund
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Defined Contribution Plan
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
outlines the benefits that employees will receive when they retire employer is liable
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Actuaries
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
companies compute by using vested benefits at their current salaries level
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Vested Benefits
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
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
bases the deferred compensation amount on both vested and non-vested service using future salaries
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Overfunded/Underfunded
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
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
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
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
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
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
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
Annual Pension Expense Cash Prior Service Costs Gain/Loss Pension Asset/Liability Projected Benefit Obligation Plan Assets
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