Question

Rainbow Co. began operations in 2019 and reported $600,000 in income before income taxes for the year. Rainbow’s 2019 tax depreciation exceeded its book depreciation by $80,000. Rainbow also had nondeductible book expenses of $30,000 related to permanent differences. Rainbow’s tax rate for 2019 was 25%, and the enacted rate for years after 2019 is 30%. In its December 31, 2019, balance sheet, what amount of deferred income tax liability should Rainbow report?

Answer 1

Answer:

30.000

Explanation:

Income before taxes  $300,000

Timing difference between books and Tax (A) $100,000

Permanent difference cannot be considered for calculation of Differed tax liability or Deferred tax asset $40,000 (B)  is zero

Total Timing deference (C=A+B)  $100,000

Tax rate enacted for future (D)  30%

Differed tax liability (C*D)  $30,000