Bronson Industries reported a deferred tax liability of $19.2 million for the ye
ID: 2471208 • Letter: B
Question
Bronson Industries reported a deferred tax liability of $19.2 million for the year ended December 31, 2015, related to a temporary difference of $48 million. The tax rate was 40%. The temporary difference is expected to reverse in 2017 at which time the deferred tax liability will become payable. There are no other temporary differences in 2015–2017. Assume a new tax law is enacted in 2016 that causes the tax rate to change from 40% to 30% beginning in 2017. (The rate remains 40% for 2016 taxes.) Taxable income in 2016 is $86 million.
Determine the effect of the change and prepare the appropriate journal entry to record Bronson’s income tax expense in 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Bronson Industries reported a deferred tax liability of $19.2 million for the year ended December 31, 2015, related to a temporary difference of $48 million. The tax rate was 40%. The temporary difference is expected to reverse in 2017 at which time the deferred tax liability will become payable. There are no other temporary differences in 2015–2017. Assume a new tax law is enacted in 2016 that causes the tax rate to change from 40% to 30% beginning in 2017. (The rate remains 40% for 2016 taxes.) Taxable income in 2016 is $86 million.
Explanation / Answer
Solution :
Change in tax rates due to new tax law is a change in estimates requiring adjustment to deferred tax liability to reflect revised tax rate.
Tax expense
29.60
Deferred tax liability (0.30-.40)*48
4.80
tax payable (86*0.40)
34.40
Tax expense
29.60
Deferred tax liability (0.30-.40)*48
4.80
tax payable (86*0.40)
34.40
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