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Video instructions and help with filling out and completing Schedule m 3 temporary differences
This is a presentation on booked attacks permanent and temporary differences between a u.s. parent corporation its foreign subsidiaries we'll start by looking at the financial effects of a u.s. parent company assuming that it owns one hundred percent of the foreign subsidiary such as how they account for this investment in their books by using the equity method then we'll explain the tax consequences of having a permanent and reinvestment of foreign earnings next we'll introduce an example of a temporary difference that could occur when intercompany transactions take place between the US parent corporation in the foreign corporation we'd like to start with an example of us parent corporation with a Foley own foreign subsidiary in China assume that throughout the year the foreign subsidiary had net income of 2.5 million u.s. dollars and they paid $100,000 in dividends to the US parent now how would these amounts be reflected in the u.s. parents books well first of all the moment the US parent acquired the foreign subsidiary the u.s. corporation had to create an investment account in the foreign subsidiary and debit that account by the acquisition price which in our case was four million dollars also let's assume the u.s. parent chose to record its foreign subsidiaries transactions under the equity method therefore if the foreign subsidiary had 2.5 million dollars in that income than the parent would record an increase in the investment in sub account by debiting it by that amount in crediting equity in the foreign subbing come to reflect the effect of an increase in earnings if the foreign sub pays out a dividend of $100,000 to the parent Corp and the u.s. parent Corp would debit cash and credit the investment in foreign sub to reflect a decrease in the value of the actual investment in the foreign subsidiary it is possible however that the foreign subsidiary does not declare or distributed dividend which u.s. parent in this case the money the parent would have received is reinvested in the foreign subsidiary and since the money remains in the foreign country and it's not distributed to the parent Corp the no dividend entry should be made instead this amount would be part of the foreign subsidiary income so the dividend amount will be reflected in the u.s. parent books as an accrual of the subsidiary income and we would debit the investment account and credit the equity in foreign subsidiary account is the entry that is made to record income earned by the subsidiary this creates a temporary difference since the income of the foreign subsidiary is recognized and consolidated income for financial purposes but for tax purposes the income is not taxed in the u.s. until it is repatriated or in other words brought into the United States in this case a deferred tax liability would be credited and a different income tax expense debited equal to the amount of income tax payable the parent expects to upon eventual.