Two independent situations are described below. Each involves future deductible
ID: 2491829 • Letter: T
Question
Two independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences: SITUATION 1 2 Taxable income $44,000 $84,000 Amounts at year-end: Future deductible amounts 5,400 10,400 Future taxable amounts 0 5,400 Balances at beginning of year, dr (cr): Deferred tax asset $1,000 $3,640 Deferred tax liability 0 1,000 The enacted tax rate is 35% for both situations. Required: For each situation determine the:
situation 1 2
SITUATION(a.)Income tax payable currently.
(b.)Deferred tax asset - balance at year-end.
(c.)Deferred tax asset change dr or (cr) for the year.
(d.)Deferred tax liability - balance at year-end.
(e.)Deferred tax liability change dr or (cr) for the year.
f.)Income tax expense for the year.
Explanation / Answer
Situation 1 2 Taxable Income 44,000 84,000 Tax Rate 35% 35% a. Income Tax Payable Currently 15,400 29,400 Future Deductible Amount 5,400 10,400 Tax Rate 35% 35% b. Deferred Tax Asset Ending Balance 1,890 3,640 Deferred Tax Asset Beginning Balance 1,000 3,640 c. Change in Deferred Tax Assets Dr. (Cr.) 890 - Future Taxable Amount - 5,400 Tax Rate 35% 35% d. Deferred Tax Liability Ending Balance - (1,890) Deferred Tax Liability Beginning Balance - (1,000) e. Change in deferred tax liability dr (cr) - (890) Income Tax Payable (15,400) (29,400) Change in Deferred Tax Assets Dr. (Cr.) 890 - Change in deferred tax liability dr (cr) - (890) f. Income Tax Expense 14,510 30,290
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