| Course | ACC 620 Financial Reporting II |
|---|---|
| Module | Module 3 |
| Paper type | graduate milestone on income tax accounting under ASC 740 |
| Length | About 1,040 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 620 Module 3
Income Tax Provision and Deferred Tax Analysis for 2025
[Student Name]
Southern New Hampshire University
ACC 620: Financial Reporting II
Milestone One
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Income Tax Provision and Deferred Tax Analysis for 2025
Introduction
The carrier earned $50.0 million before income taxes in 2025. Its tax provision is complicated by three features of the year: continued bonus depreciation on its tractor fleet, the acquisition of a Minnesota carrier that brought state loss carryforwards, and a dispute about whether its trucks passing through Illinois create taxable presence there. This milestone applies ASC 740 to measure deferred taxes, the valuation allowance and the uncertain position, then determines total tax expense and reconciles it to the statutory rate (Kieso et al., 2019).
Temporary Differences
Deferred taxes are measured at the enacted rates expected to apply when differences reverse, here a 25 percent combined federal and state rate, net of the federal benefit of state taxes, except for the Minnesota carryforwards, measured at Minnesota's rate.
Deferred tax balances, in thousands
| Item | December 31, 2025 | December 31, 2024 | Change |
|---|---|---|---|
| Property and equipment | $(47,500) | $(43,000) | $(4,500) |
| Accrued accident and cargo claims | 9,500 | 8,750 | 750 |
| Lease liabilities net of right-of-use assets | 1,500 | 1,400 | 100 |
| Stock-based compensation | 2,100 | 1,800 | 300 |
| Minnesota loss carryforwards, acquired | 2,352 | 0 | 2,352 |
| Valuation allowance | (1,100) | 0 | (1,100) |
| Net deferred tax liability | $(33,148) | $(31,050) | $(2,098) |
The largest item is property. Bonus depreciation lets the carrier deduct most of a new tractor's cost in the year of purchase, while book depreciation spreads it over seven years, so the tax basis of the fleet is $190 million below its carrying amount. Accrued claims are deductible only when paid, which creates an asset. Under ASC 842, the carrier's lease liabilities slightly exceed its right-of-use assets, and because tax deductions follow rent payments, the net is a small asset. Stock awards create an asset based on expense recognized for unvested awards.
Acquired Carryforwards and the Valuation Allowance
The Minnesota carrier, acquired in April, had $24 million of state net operating loss carryforwards, worth $2.35 million at Minnesota's 9.8 percent rate. ASC 740-10-30-5 calls for an allowance against the portion the carrier will more likely than not fail to use. The negative evidence is that the acquired carrier lost money for three years and that $8 million of the losses expire within four years, while Minnesota limits use of acquired losses to income apportioned from the acquired operations. The positive evidence is the carrier's plan to route its own Minnesota freight through the acquired terminals, which should raise apportioned income. Weighing the two, management concluded that about $11 million of losses, those expiring soonest, will likely go unused, requiring an allowance of $1.1 million.
At the acquisition date the allowance was estimated at $800,000 and recorded in purchase accounting, increasing goodwill. The $300,000 increase since then reflects new information about the acquired operations' results and goes to tax expense, because it arose after the measurement period evidence was known. Frank and Rego (2006) found evidence that managers adjust valuation allowances to meet earnings targets, so the documentation behind this estimate should be specific.
Uncertain Tax Position
The carrier did not file Illinois returns, taking the position that trucks passing through the state without pickups or deliveries do not create nexus. The potential Illinois tax for open years is $2.4 million. Under ASC 740-10-25-6, the first step asks whether the position is more likely than not to be sustained on its technical merits, assuming examination by a fully informed authority. Outside counsel concluded it is, citing federal limits on state taxation of interstate carriers, so the position passes step one. Step two measures the benefit as the largest amount more than 50 percent likely to be realized on settlement (Financial Accounting Standards Board, 2006).
Possible outcomes of the Illinois position
| Benefit realized | Probability | Cumulative probability |
|---|---|---|
| $2,400,000 | 30 percent | 30 percent |
| $1,600,000 | 25 percent | 55 percent |
| $800,000 | 20 percent | 75 percent |
| $0 | 25 percent | 100 percent |
The largest amount with cumulative probability above 50 percent is $1.6 million. The carrier recognizes that benefit and records a liability for the $800,000 unrecognized benefit, plus accrued interest classified, under its policy, in income tax expense.
Tax Expense and the Rate Reconciliation
Deferred tax expense is the change in the net deferred liability, $2,098,000, adjusted for the items that did not run through income: the acquired carryforwards, $2,352,000, and the acquisition-date allowance, $800,000, both recorded in purchase accounting. That gives deferred expense of $3,650,000. Total expense, from the reconciliation below, is $14,200,000, so current expense is $10,550,000, including the $800,000 uncertain position.
Rate reconciliation, in thousands
| Item | Amount | Rate |
|---|---|---|
| Tax at 21 percent statutory rate | $10,500 | 21.0 percent |
| State taxes, net of federal benefit | 2,000 | 4.0 percent |
| Nondeductible portion of driver per diem | 900 | 1.8 percent |
| Excess tax benefits on vested stock | (350) | (0.7) percent |
| Change in valuation allowance | 300 | 0.6 percent |
| Unrecognized tax benefit, Illinois | 800 | 1.6 percent |
| Other | 50 | 0.1 percent |
| Income tax expense | $14,200 | 28.4 percent |
The per diem line is a permanent difference: transportation workers' meal allowances are only 80 percent deductible. Under ASU 2023-09, which the carrier adopts for 2025 as a public company, the reconciliation must show prescribed categories and separate any item above 5 percent of the statutory amount.
What Would Change the Estimates
Both judgments could move in 2026. If the routing plan lifts Minnesota apportioned income as expected, part of the $1.1 million allowance would be released, a benefit to tax expense in the year the evidence becomes persuasive, not before. If the plan slips, the allowance would grow toward the full $2.35 million. For Illinois, the key event is the state's audit, which began in November. A settlement at $800,000 of tax would let the carrier recognize the $800,000 still reserved; a loss on the nexus question would cost the remaining $1.6 million plus interest. The bonus depreciation liability will also change as the phase-down reduces the bonus percentage on new tractors, which will slow the growth of the property difference and raise current tax payments relative to expense.
Presentation and Conclusion
The $33.1 million net deferred liability is presented as noncurrent, netted within each tax jurisdiction. Graham et al. (2012) note that tax accounts are among those most open to judgment in financial statements, and here two of them, the allowance and the Illinois position, together move tax expense by $1.1 million. Both should be described in the notes, with the unrecognized benefit roll-forward the standard requires.
References
Financial Accounting Standards Board. (2006). Accounting for uncertainty in income taxes: An interpretation of FASB Statement No. 109 (FASB Interpretation No. 48). Author.
Frank, M. M., & Rego, S. O. (2006). Do managers use the valuation allowance account to manage earnings around certain earnings targets? Journal of the American Taxation Association, 28(1), 43-65. https://doi.org/10.2308/jata.2006.28.1.43
Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1-2), 412-434. https://doi.org/10.1016/j.jacceco.2011.11.006
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the ACC 620 Module 3 instructions ask for
The first ACC 620 milestone usually asks you to account for a case company's income taxes under ASC 740. Plan to identify temporary differences and carryforwards, compute deferred tax assets and liabilities at enacted rates, assess whether a valuation allowance is needed, measure any uncertain tax positions using the two-step approach and determine current and deferred tax expense. Most versions also ask for a rate reconciliation and the balance sheet presentation. Explain the evidence behind the valuation allowance and the uncertain position, since those are judgments, not computations, and graders expect you to weigh positive and negative evidence explicitly. A roll-forward of the net deferred balance ties it together.
How this ACC 620 Module 3 milestone one example is built
The milestone builds a deferred tax schedule. Bonus depreciation leaves tractors and trailers with a tax basis $190 million below book, a $47.5 million liability at a 25 percent combined rate. Accrued accident claims, leases and stock compensation create assets. Minnesota loss carryforwards from an acquired carrier add $2.35 million, partly offset by a $1.1 million valuation allowance for amounts likely to expire. An uncertain position on Illinois nexus is recognized at $1.6 million of a $2.4 million claim. Deferred expense is $3.65 million, current expense $10.55 million and total $14.2 million, an effective rate of 28.4 percent, reconciled item by item to 21 percent, with the presentation and the judgments the notes must explain.
Where the ACC 620 Module 3 rubric puts the points
Rubrics for the first ACC 620 milestone typically score the identification of temporary differences, computation of deferred tax balances, the valuation allowance analysis, uncertain tax position measurement, the current and deferred expense split, the rate reconciliation and Codification support. Top papers distinguish temporary from permanent differences, weigh the four sources of future taxable income, apply cumulative probability correctly and explain each reconciling item. Graders also reward correct treatment of acquired tax attributes, which belong in purchase accounting at the acquisition date. Common deductions include applying a valuation allowance without evidence, measuring an uncertain position at its expected value, presenting deferred taxes as current and a rate reconciliation that does not sum.
ACC 620 Module 3 help: the mistakes that cost points
Tax provision papers most often slip on the uncertain position, using an expected value or an all-or-nothing approach rather than the largest amount more than 50 percent likely to be realized. A second weak spot is the valuation allowance, where students assert a conclusion without listing the evidence for and against. If your case involves a tax rate change or an intraperiod allocation, the same schedule works with the change measured at the enactment date. Build the deferred tax roll-forward from beginning to end balances first; the change in the net balance, less items recorded outside income, is the deferred expense, and it checks the rest of the work. A reconciliation that sums to the reported rate is the final test.
Get ACC 620 Module 3 written to your instructions
Send the ACC 620 Milestone One guidelines and the tax data. The milestone will build the deferred tax schedule, assess the valuation allowance and any uncertain positions, compute the provision and prepare the rate reconciliation with Codification support. Your first sample is free and generally arrives in two days. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 620 Module 3 questions, answered
Where can I find a free ACC 620 Module 3 Milestone One sample?
This page includes a full ACC 620 Milestone One computing a carrier's income tax provision, valuation allowance and uncertain tax position.
How is an uncertain tax position measured under ASC 740?
First, recognize it only if it is more likely than not to be sustained on its technical merits; then measure it at the largest amount that is more than 50 percent likely to be realized on settlement.
When is a valuation allowance needed?
When the evidence suggests, at better than even odds, that part of the asset will never reduce taxes, based on all available positive and negative evidence about future taxable income.
How are deferred taxes presented on the balance sheet?
As noncurrent, netted by tax jurisdiction, after ASU 2015-17 removed the current and noncurrent split.
What is a rate reconciliation?
A disclosure that reconciles income tax expense at the statutory federal rate to the reported expense, showing the effect of state taxes, permanent differences, credits, valuation allowance changes and other items.