Question

1) Future taxable amounts is calculated using the future enacted tax rate. (answer True or False)...

1) Future taxable amounts is calculated using the future enacted tax rate. (answer True or False)

2) Pretax income and income before taxes would typically be different due to permanent differences. (answer True or False)

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Answer #1

1) True. Future Income taxes are income taxes deferred by discrepancies between, for example, net income reported on a tax return and net income reported on financial statements. Computation of net income using different methods or in different time periods result in two figures. One is for tax purposes, and the other is for financial purposes and taxes will be different.The nominal amount of the future income taxes is equal to the differences multiplied by the applicable tax rate.

2) False. There is no difference between earnings before tax (EBT) and Pretax income. Both terms have the same concept. EBT or pretax income is a measure of the company’s profitability. EBT indicates the amount of money that a company retains after deducting all operating expenses but prior to the deduction of tax expenses.

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