Question

Mahaffey Enterprises has a temporary difference resulting in future deductible amounts of $500,000, income taxes payable of $800,000, and a tax rate of 20 percent. What should they record as their income tax expense for this period?

Answer 1

Answer: $700,000

Explanation:

Given the following ;

Income tax payable = $800,000

Future deductible amount = $500,000

Tax rate = 20%

Deferred tax asset ( usually used to cut down taxable income due to incurred losses in a business)

Deferred tax = tax rate × future deductible amount

Deferred tax asset = (20÷100) × 500,000

Deferred tax asset = 0.2 × 500,000

Deferred tax asset = $100,000

Therefore, income tax expense for this period Is ;

Income taxes payable - deferred tax asset = $800,000 - $100,000

Income tax expense = $700,000

Answer 2

Answer: Income tax expense $700,000

Explanation: Income taxes payable is equal to the sum of the income tax expense and the deferred tax asset.

Income taxes payable= $800,000

future deductible amounts = $500,000

Tax rate= 20%(0.2)

Firstly, calculate

deferred tax asset= (future deductible amounts x Tax rate )

deferred tax asset =$500,000 x 0.2

deferred tax asset = $100,000

Then, calculate the income tax expensive.

Income tax expense = ( Income taxes payable - deferred tax asset)

Income tax expense=( $800,000 - $100,000)

Income tax expense= $700,000