[Anonymous]

okay so I think becker does a good job setting up income tax on the Tax return vs the Financial statements. However, I am having trouble understanding how deferred tax assets/liabilities reverse.

for example:

Dr: Income tax expense-deferred 7500

Cr: Deferred tax Liability 7500

So this means that you will owe an additional $7500 in the future period when the DTL reverses, right?

So why does the reversing entry use different terminology? Here’s the reversal becker shows

Dr: Deferred tax liability 7500

Cr: Income tax BENEFIT-deferred 7500

Why does it change from income tax expense to benefit? how does a benefit increase the amout of tax you are paying in year two since the liability reversed ? Why wouldn’t the reversal increase “Income tax payable” instead of “income tax benefit”?

basically I’m having trouble seeing how these JE’s affect the I/S and B/S

[Anonymous]

bump

[murano]

I REALLY need help on this one. I think the reversal entry should be

Dr: Deferred tax liability 7500

Cr: Income tax payable 7500

[nahlij]

Im taking FAR in 2 days and I completely have skipped anything to do with DTA and DTL. Out of everything in the book I just don't get how I don't understand that topic..I completely gave up on it. Same with partnerships, they just dont click for me

[Anonymous]

Hi, so the reversal entry would be:
Dr. Deferred tax liability 7,500
Cr. Cash (or income tax payable) 7,500

[murano]

Hi Chandler,
Thanks for the journal entry. I think it should be a credit to cash/income tax payable as well, but many people say the entry should be
Dr. Deferred tax liability xxx
Cr. income tax expense-deferred xxx
This doesn't make sense to me at all! Are they wrong, or am I missing something?

[Adam]

You don't owe anything in a future period..you're realizing tax that was deferred in prior periods due to timing differences now..

So the liability on the books now becomes an expense in this period.

You're reducing the deferred liability..I don't see how income tax expense is being credited though its not a balance sheet account.

The Credit to Cash/Income tax payable is not correct..crediting a payable increases the account..and cash is not being paid out here..you are simply increasing or decreasing a future period Tax asset/liability account.
…………………………………………………………………………………..
So why does the reversing entry use different terminology? Here's the reversal becker shows

Dr: Deferred tax liability 7500

Cr: Income tax BENEFIT-deferred 7500

Why does it change from income tax expense to benefit? how does a benefit increase the amount of tax you are paying in year two since the liability reversed ? Why wouldn't the reversal increase “Income tax payable” instead of “income tax benefit”?

……………………………………………………

If you have a deferred asset you have prepaid tax in the current year and it carries forward on the B/S..if you have a deferred liability you benefited by deferring tax due now to a later period..So my guess is the account is named that due to the time value of money, giving you a benefit on reducing the economic impact of the tax(Never seen it listed as that on any B/S)..Your tax increases due to the timing difference being realized and the tax due being paid in this period.

[Adam]

Honestly It baffles me why people think they need to use Becker..its probably the most overpriced of all the exam aides and it tests all kinds of weird things you'll never see..and in this case for example only confuses things..

Try and find a Roger CPA “ASC 740” lesson which is over tax deferrals..he explains it really well and makes things clear and understandable.

To me it sounds like you have a good grasp on the subject but Becker is playing word games with you and confusing you..and others with there terminology.

[Author]

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