Question

Plutonic Inc. had $400 million in taxable income for the current year. Plutonic also had an increase in deferred tax liabilities of $50 million and recognized tax expense of $80 million. The company is subject to a tax rate of 40%. The change in deferred tax assets (ignoring any valuation allowance) was a/an: Group of answer choices increase of $30 million. decrease of $130 million. increase of $130 million. decrease of $30 million.

Answer 1

Answer:

Increase of 130 million

Explanation:

In this question, we are looking to evaluate what has happened to change in deferred tax assets. We proceed as follows;

Firstly, we calculate the current tax.

Mathematically = 40% of 400 million = 40/100 * 400 million = 160 million

Now, as we can see in the question, a decrease in deferred tax asset resulted in an increase in tax expense to a tune of $50 million

This brings the total tax expense to 160 million + 50 million = 210 million

We can see from the question that the company has only recognized a tax expense of $80 million.

This means that the change in deferred tax asset was an increase of 210 million- 80 million = $130 million