Question

Two independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences:
SITUATION 1 2
Taxable income $35,000 $75,000
Amounts at year-end:
Future deductible amounts 4,500 11,500
Future taxable amounts 0 4,500
Balances at beginning of year, dr (cr):
Deferred tax asset $1,000 $4,600
Deferred tax liability 0 1,000
The enacted tax rate is 40% for both situations.
Required: For each situation determine the:
SITUATION
1 2
a) Income tax payable currently.
b) Deferred tax asset - balance at year-end.
c) Deferred tax asset change dr or (cr) for the year.
d) Deferred tax liability - balance at year-end.
e) Deferred tax liability change dr or (cr) for the year.
f) Income tax expense for the year.

Answer 1

Answer:

       SITUATION                                                                    1                  2

a) Income tax payable currently.                                    $14,000     $30,000

b) Deferred tax asset - balance at year-end.                   $1,800       $4,600

c) Deferred tax asset change dr or (cr) for the year.         $800              $0

d) Deferred tax liability - balance at year-end.                      $0       -$1,800

e) Deferred tax liability change dr or (cr) for the year.          $0         -$800

f) Income tax expense for the year.                              $13,200     $30,800

Explanation:

Note: See the attached excel file for all the calculations of all the answers a to f above.

Download xlsx