3. Beanwinker Industries began operations in 2017. In 2017 the company had pre-t

Question

3. Beanwinker Industries began operations in 2017. In 2017 the company had pre-tax financial income of $600,000 and an average tax rate of 30% (for 2017 and thereafter). Beanwinker determines that $10,000 of insurance premiums paid during 2017 are not tax deductible. Beanwinker also determines that $40,000 of financial revenues will not be taxable until future periods. Which of the following entries will Beanwinker record on 12/31/17 related to its taxes? a. Debit deferred tax asset' $3,000 b. Credit 'deferred tax liability' S3,000 c. Debit 'deferred tax asset' $15,000 d. Credit deferred tax liability' $15,000 e. None of the above 4. LP3 Corp. began operations in 2017. That year, LP3 Corp. experienced a net operating loss (before taxes) of $80,000. The enacted tax rate equaled 40% in 2017 and thereafter. The company expects to be able to utilize any deferred tax assets in future periods. Based on this information, which of the following will LP3 record on 12/31/17 related to its taxes? a. Debit 'income tax expense' S32,000 b. Credit 'benefit loss carryforward' S32,000 c. Debit 'deferred tax asset' $80,000 d. Credit deferred tax liability' $80,000 e. None of the above

Explanation / Answer

Deferred tax arises when there is temporary timing difference and not permanent difference.

Here 10,000 is permanent difference as this will not effect tax in future years. Therefore, the same is not considered for differed tax

However , 40,000 will be taxable in future so same is a liability

Therefoee, the correct is credit deferred tax liability 12000 (40000*0.30)

Answer: E

4)

Here, there will be nothing but carried forward of 80,000 in future years

Answer : E none of the above.

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