Question

At December 31, 2017 Raymond Corporation reported a deferred tax liability of $240,000 which was attributable to a taxable temporary difference of $800,000. The temporary difference is scheduled to reverse in 2021. During 2018, a new tax law increased the corporate tax rate from 30% to 40%. Raymond should record this change by debiting
A) Retained Earnings for $80,000.
B) Retained Earnings for $24,000.
C) Income Tax Expense for $24,000.
D) Income Tax Expense for $80,000.

Answer 1

Answer:

D) Income Tax Expense for $80,000.

Explanation:

The computation is shown below:

Since the corporate tax rate is increased from 30% to 40% and the taxable temporary difference is of $800,000 so the change would be

= $800,0000 × difference in tax rate

= $800,000 × 10%

= $80,000

This amount i.e $80,000 would be debited and shown as an income tax expense

Moreover, the deferred tax liability is ignored