Operating income and tax rates for Sandhill Company’s first three years of opera

Question

Operating income and tax rates for Sandhill Company’s first three years of operations were as follows: Income Enacted tax rate 2017 $440000 35% 2018 ($880000) 30% 2019 $1620000 40% Assuming that Sandhill Company opts only to carryforward its 2018 NOL, what is the amount of deferred tax asset or liability that Sandhill Company would report on its December 31, 2018 balance sheet? Amount Deferred tax asset or liability $264000 Deferred tax asset $308000 Deferred tax liability $352000 Deferred tax asset $264000 Deferred tax liability

Explanation / Answer

Since Sandhill Company has not opted for the Carryback provisions and has decided to carriedforward loss, in that case it will create a a deferred tax asset.

The amount of deferred tax asset is equal to : 880000*0.4 = $352,000.

Answer - $352000 Deferred tax asset.

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