Question

12.

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	$	40,000	$	80,000
Amounts at year-end:
Future deductible amounts		5,000		10,000
Future taxable amounts		0		5,000
Balances at beginning of year, dr (cr):
Deferred tax asset	$	1,000	$	4,000
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

		Situation
		1	2
a.	Income Tax Payable Currently	16,000.00	32,000.00
		$40,000 X 40%	$80,000 X 40%
b.	Deferred Tax Asset - Balance at the year end	2,000.00	4,000.00
		$5,000 X 40%	$10,000 X 40%
c.	Deferred Tax Asset Change dr or cr for the Year	1,000.00	-
		$2,000 - $1,000	$4,000 - $4,000
d.	Deferred Tax Liability - Balance at year end	-	2,000.00
			$5,000 X 40%
e.	Deferred tax liability change dr or cr for the Year	-	1,000.00
			$2,000 - $1,000
f.	Income Tax Expense for the Year	15,000.00	33,000.00
		$16,000 - $1,000	$32,000 - $0 + $1,000