Accounting in Action: CM2

Chapter 19
Accounting in Action: CM2
When you arrive at CM2forthe afternoon, Connerand Martin are arguing with
Lopez and Knepp about, of all things, the corporate income taxes. As you walk
in, you hear Conner saying, “The corporate rate is always 35%.” For some
reason, Knepp is talking about something called SFAS No. 109 that has to do
with how taxes are reported in financial statements (deferred taxes). This
discussion is not clear to you since you have not yet had a tax course, so you
figure you will learn a lot this aftemoon. (You had no idea at this point how much
you would learn.)
Instructions
Access File 4a to perform the following analysis (Excel File). This file contains
the balance sheet and income statement reflecting forecasts for 2013. Review
the income statement and verifv that the tax is indeed 350/o of income before tax
for both 2012and2013.
(a) V Since Knepp has raised the issue of SFAS No. 709, access the
FASB Codification and read the information describing the framework now
used in accounting for income taxes. Write a memo that you can take to
Conner and Martin describing the change in focus from the income
statement to the balance sheet. Describe the concepts of permanent and
temporary differences. Give two examples of each and how they reflect
the new focus.
Continuing Case 3