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MEMORANDUM

TO: All Employees

FROM:

DATE: August 29, 2011

SUBJECT: CPA Report

The methodology used to deferred taxes is by having a temporary tax. By doing this the company can show what they have to pay for the years later on. The company can show how much is left by putting the temporary tax under the Long-term Liabilities on the balance sheet. Schroeder, Clark, & Cathey (2005) states: “Accounting for deferred taxes involves the following steps: Calculate taxable income and income tax payable for the year. Compute deferred income taxes at the end of the year. Determine deferred tax expense (benefit) and make the journal entry to record income taxes. Classify deferred tax assets and liabilities as current or noncurrent in the financial statements.” The procedures for reporting accounting changes depend what types of changes are being made. There are three types of accounting changes: Change in Accounting Principle, Change in Accounting Estimate, and Change in Reporting Entity (Schroeder, Clark, & Cathey, 2005, p.1152). Each change is different due to what is being change. If inventory is change then the Change in Accounting Principle would be used. If a depreciated asset is being changed by the number of years that at one time had a different useful life then the Change in Accounting Estimate. The Change in Reporting Entity is when a company merges with another company and becomes a partnership or when a partnership is no longer needed and changes to a corporation. Each change needs to make sure the right procedures are being done. The rationale behind establishing the subsidiary as a corporation is for legal and tax reasons. To have the subsidiary as a corporation the corporation would “maintain a Capital Stock account, Additional Paid-In Capital accounts, and a Retained Earnings account” (Bline, Fischer, &

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