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cpaboston
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Posted: 11 Jul 2008 at 21:44 \| IP Logged

Quinn Co. reported a net deferred tax asset of $9,000 in its December 31, 1993, balance sheet. For 1994, Quinn reported pretax financial statement income of $300,000. Temporary differences of $100,000 resulted in taxable income of $200,000 for 1994. At December 31, 1994, Quinn had cumulative taxable differences of $70,000. Quinn's effective income tax rate is 30%. In its December 31, 1994, income statement, what should Quinn report as deferred income tax expense?

a) 12,000
b) 21,000
c) 30,000
d) 60,000

Their answer:

Choice "c" is correct, $30,000.
Analysis of deferred tax account:

    12/31/93    change    12/31/94
Temporary differences    30    (100)    (70)
Tax rate         &n bsp;         &n bsp; x30%              x30%
deferred tax asset          9      (9)        0
deferred tax liability 0      (21)   (21)
net deferred tax       9   (30)      (21)

Why does the net of an asset of 9 and a liability of 21 come out to 30? I think i am missing something here. Can anyone help

jcsc
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Posted: 11 Jul 2008 at 22:34 \| IP Logged

Ending deferred tax asset (liability) - Beg deferred tax asset (liability) = deferred tax expense.

ending deferred tax liability is (21000)

beg deferred tax asset is - 9000

Deferred tax expense = 30,000

If the beginning was deferred tax liability and ending was deferred tax liability then

(21,000)

-(9000)

Deferred tax expense is 12,000

I hope I am clear.

may09
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Joined: 17 Dec 2008
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Posted: 26 Jan 2009 at 12:23 \| IP Logged

Can somebody explain this ? I am really getting confused with this.. Shouldn't current deferred tax liability be reduced from deferred tax asset?

__________________
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siushan
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Posted: 28 Jan 2009 at 09:10 \| IP Logged

Deferred tax expense
= Change in DTL - Change in DTA
= (ending balance of DTL - beginning balance of DTL) - (Ending balance of DTA - beginning balance of DTA)
= (21k - 0) - (0 - 9k)
= 30k

may09
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Joined: 17 Dec 2008
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Posted: 28 Jan 2009 at 10:27 \| IP Logged

Thanks siushan...

__________________
REG(11/12)-Rcvd(12/18)
FAR(02/24)-Rcvd(03/20)
AUD(04/04)-Rcvd(05/18)
BEC(05/30)-Rcvd(06/15)

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