Chapter 19, Problem 7E

To determine

Temporary differences: The difference between the actual taxable liability and the books of records maintained by the individual, firm or an entity is termed as temporary difference. The difference is created because of the tenure of transactions or the actual performance of transactions, flow of funds into the business or changes in the value of the asset or liability due to business situations. These differences are adjustable in future when the appropriate time for the transaction arises.

Taxable income: Income that is computed after deducting all allowable or permissible deductions from the pretax financial income is called taxable income. In other words, the income that is eligible for computing the tax liability is taxable income.

(a)

To determine the reversal effect of temporary difference in the pretax financial income.

To determine

(b)

To determine the cumulative temporary difference.

To determine

(c)

To determine whether deferred taxes are recorded for permanent difference.

To determine

(d)

To determine the cause of temporary difference in taxable income and pretax income.

To determine

(e)

To determine the effect of tax expense and deferred tax expense in the current tax.

To determine

(f)

To determine the tax payable for year 2.

To determine

(g)

To determine the effect of recording the deferred tax liability in the balance sheet.

To determine

(h)

To determine the income tax expense of the year.

To determine

(i)

To determine the need of valuation account in deferred tax asset.

To determine

(j)

To determine whether the deferred tax is an expense or a benefit.