C is corrent. The amount of deferred taxes charged to expense is the change in the deferred tax asset/liability account during the year. In year 3, taxable income is $300,000 less than accounting income because tax depreciation is $300,000 more than accounting depreciation ($800,000 – $500,000). This would cause an increase in the deferred tax liability of $90,000 (30% × $300,000) as illustrated in the following journal entry:| Income tax expense (deferred portion) | 90,000 | | | | 90,000 |
Please note that the balance in the deferred tax liability account (year 2 beginning balance equals 0) would be $60,000 [($600,000 – $400,000) × 30%] increase from year 2 plus $90,000 added in year 3 or $150,000.A is incorrect. The amount of deferred taxes charged to expense is the change in the deferred tax asset/liability account during the year. In year 3, taxable income is $300,000 less than accounting income because tax depreciation is $300,000 more than accounting depreciation ($800,000 – $500,000). This would cause an increase in the deferred tax liability of $90,000 (30% × $300,000) as illustrated in the following journal entry:
| Income tax expense (deferred portion) | 90,000 | | | | 90,000 |
Please note that the balance in the deferred tax liability account (year 2 beginning balance equals 0) would be $60,000 [($600,000 – $400,000) × 30%] increase from year 2 plus $90,000 added in year 3 or $150,000.A is incorrect. The amount of deferred taxes charged to expense is the change in the deferred tax asset/liability account during the year. In year 3, taxable income is $300,000 less than accounting income because tax depreciation is $300,000 more than accounting depreciation ($800,000 – $500,000). This would cause an increase in the deferred tax liability of $90,000 (30% × $300,000) as illustrated in the following journal entry:A is incorrect. The amount of deferred taxes charged to expense is the change in the deferred tax asset/liability account during the year. In year 3, taxable income is $300,000 less than accounting income because tax depreciation is $300,000 more than accounting depreciation ($800,000 – $500,000). This would cause an increase in the deferred tax liability of $90,000 (30% × $300,000) as illustrated in the following journal entry:
| Income tax expense (deferred portion) | 90,000 | | | | 90,000 |
Please note that the balance in the deferred tax liability account (year 2 beginning balance equals 0) would be $60,000 [($600,000 – $400,000) × 30%] increase from year 2 plus $90,000 added in year 3 or $150,000. |
