Question

The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): pretax acct income: $200 pretax acct income included: overweight fines: 5 depreciation expense: 70 depreciation in the tax return using MACRS: 110 The applicable tax rate is 40%. There are no other temporary or permanent differences. Franklin's balance sheet at the end of its first year would report:
(A) A deferred tax liability of $16 among noncurrent liabilities.
(B) A deferred tax liability of $16 among current liabilities.
(C) A deferred tax asset of $16 among noncurrent assets.
(D) A deferred tax asset of $16 among current assets.

Answer 1

Answer:

correct option is (A) A deferred tax liability of $16 among noncurrent liabilities.

Explanation:

solution

pretax account income = $200

overweight fines=  $5

understate depreciation = 110 - 70 = $40

so total taxable income is = $200 - $5 - $40

total taxable income is = $165

and

income tax is = 40% of $165

income tax = $66

and

income tax expense as per book is = 40 % of ( 200 + 5 )

income tax expense as per book is = $82

so deferred tax liability among non current liability is = $82 - $66 = $16

so correct option is (A) A deferred tax liability of $16 among noncurrent liabilities.