Dutch Bakers has a $100,000 deferred tax liability that will create taxable income in 2020. Dutch...

Dutch Bakers has a $100,000 deferred tax liability that will create taxable income in 2020. Dutch established the deferred tax liability in 2017 when the tax rate was 40%, and in 2018 the tax rate enacted for 2020 was increased to 50%.
Part 2: In 2018, the year the tax rate change for 2020 is enacted, the effect of the change on tax expense will be a:

Debit of $50,000
Debit of $40,000
Debitof25,000
$0

Expert Solution

Option 3) Debit of $ 25,000

Total Tax liability @ 40% of total income	$ 1,00,000
There for Taxable amount will be	$ 2,50,000
(100000/40%)
Tax at change in rate	$ 1,25,000
(250000*50%)
Effect of change on tax	$ 25,000
(125000-100000)

Journal entry

Tax expenses account	$ 25,000
Deferred tax liability		$ 25,000

ekkarill92 answered 2 years ago

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