Study Session #10
Learning Outcome Statements
Last revised 12/18/04

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1. A. “Analysis of Income Taxes”
a) define the key terms used in accounting for income taxes;
b) explain why and how deferred tax liabilities and assets are created;
c) describe the liability method of accounting for deferred taxes;
d) discuss the implications of a valuation allocation (i.e., when it is required, what impact it has on the
financial statements, and how it might affect an analyst’s review of a company);
e) explain the factors that determine whether a company’s deferred tax liabilities should be treated as
a liability or as equity for purposes of financial analysis;
f) distinguish between temporary and permanent items in pretax financial income and
taxable income;
g) compute income tax expense, income taxes payable, deferred tax assets, and deferred tax liabilities;
h) calculate the adjustment to the financial statements related to a change in the tax rate.
B. “Analysis of Financing Liabilities”
a) compute the effects of debt issuance and amortization on the income statement, balance sheet,
and cash flow statement;
b) discuss the effect on reported cash flows of issuing zero-coupon debt;
c) discuss the effect of changing interest rates on the market value of debt and on financial
statements and ratios.
C. “Leases and Off-Balance-Sheet Debt”
a) classify a lease as capital or operating;
b) calculate the effects of capital and operating leases on financial statements and ratios;
c) discuss the factors that determine whether a company would tend to favor capital or operating
leases;
d) describe types of off-balance-sheet financing;
e) determine how take-or-pay contracts, throughput arrangements, and the sale of receivables affect
selected financial ratios;
f) distinguish between a sales-type lease and a direct-financing lease.

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