Ohio Corp. reported a deferred tax liability of $6,000,000 for the year ended De

Question

Ohio Corp. reported a deferred tax liability of $6,000,000 for the year ended December 31, 2016, when the tax rate was 40%. The deferred tax liability was related to a temporary difference of $15,000,000 caused by an installment sale in 2016. The temporary difference is expected to reverse in years 2017 through 2019 as $5,000,000 of installment income is expected to be recognized as taxable income in each of those years. There are no other temporary differences. A new tax law was passed in 2017 with the tax rate remaining 40% through December 31, 2017, then increase to 45% for tax years beginning after December 31, 2017. Taxable income for the year 2017 is $30,000,000. Income tax expense reported by Ohio on its year end December 31, 2017 income statement is:

Explanation / Answer

Taxable Income for the year 2017    30,000,000 Less: Temporary Difference       5,000,000 Accounting Income for the year 2017   25,000,000 Tax Expense for the year 2017 Tax Expense on Current year income @40% 10,000,000 Add: additional Tax on balance Temporary Differene (10,000,000@ 5%)          500,000 Tax Expense for the year 2017 10,500,000

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