Question

The disparity between book income and taxable income is attributable to a temporary difference, which will reverse in 2017. What should Weatherly record as a net deferred tax asset or liability for the year ended December 31, 2016, assuming that the enacted tax rates in effect are 35% in 2016 and 30% in 2017

Answer 1

Answer:

Deferred Tax Asset of $402,500

Explanation:

First, the first part of the question is missing, therefore find as follows:

Weatherly Company reported the following results for the year ended December 31, 2016, its first year of operations:

Income (per books before income taxes) $3,300,000

Taxable income 4,450,000

Solution:

To calculate the net deferred tax asset or liability, we should consider the difference between the book income before taxes for the year and the the taxable income for that year.

Income before income taxes = $3,300,000

Taxable income= $4, 450,000

= ($4,450,000 - $3,300,000)= $1,150,000

Secondly, since the taxable income is higher than the income before income taxes, it means that Weatherly should record a net deferred tax asset for the year ended December 31, 2016 as follows:

$1,150,000 x (enacted tax rate in 2016)

$1,150,000 x 0.35 = $402,500