Giada Foods reported $940 million in income before income taxes for 2011, its fi

Question

Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations.
Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company
also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate
for 2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax
liability in the December 31, 2011, balance sheet is
A. $35 million.
B. $16 million.
C. $40 million.
D. $56 million.

Explanation / Answer

Deferred tax liability = $100 million x 40% = $ 40 million

Permanent differences have no impact on deferred taxes.

Hence option C is correct answer.

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