Lyons Company deducts insurance expense of $105,000 for tax purposes in 2012, bu
ID: 2367774 • Letter: L
Question
Lyons Company deducts insurance expense of $105,000 for tax purposes in 2012, but the expense is not yet recognized for accounting purposes. In 2013, 2014, and 2015, no insurance expense will be deducted for tax purposes, but $35,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $90,000 at the end of 2012. There were no deferred taxes at the beginning of 2012. Assuming that income tax payable for 2013 is $120,000, the income tax expense for 2013 would be how much?Explanation / Answer
105000/3 = 35000. So It indicates that 105000 Insurance exp in 2012 is
actually Prepaid Insurance for 3 yrs.
So 105,000 in 2012 is actually an Asset in Balance sheet & not an
Expense which is passed throgh Income Stt.
So 105000 should have been added to Income of 2012 & then taxed at 40%.
SO Defered Tax liability = 105000*40% = 42000
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