Question

Robinson Company had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000 (taxed at 34%). During the year, Robinson reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000. During the year, Congress reduced the corporate tax rate to 21%. Robinson's deferred income tax expense or benefit for the current year would be:

		Net deferred tax benefit of $6,300.
		Net deferred tax expense of $6,300.
		Net deferred tax benefit of $6,700.
		Net deferred tax expense of $6,700.

Angel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

=

$189,000.

$194,250.

$210,000.

$204,750.

Answer 1

Particulars	Taxable amount	Tax rate	Tax expense/ (benefit)
Opening deferred tax liability reversal	100,000	34%	(34,000)
Deferred tax liability at new rate on opening DTL	100,000	21%	21,000
Favorable difference	50,000	21%	10,500
Unfavorable difference	20,000	21%	(4,200)
Net tax benefit			(6,700)

Answer is net tax benefit of $6,700

Question 2:

Particulars	Amount
Book income	1,000,000
Add: warranty	25,000
Less: excess depreciation	(100,000)
Less: dividends deduction	(25,000)
Taxable income	900,000
X tax rate	21%
Tax expense	189,000

Answer is $189,000