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Subject Topic: Becker HW question on Deferred Taxes (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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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
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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.

 

 

 

 

 

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may09
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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

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may09
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Posted: 28 Jan 2009 at 10:27 | IP Logged  

Thanks siushan...

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