D is corrent. Total tax expense is the current portion of tax expense plus the deferred portion of tax expense. The current portion of tax expense is calculated as taxable income times the current tax rate. The deferred portion of tax expense is derived by totaling the effects of the changes in the deferred tax assets and liabilities during the period. Because Lion is in its first year of operations, the opening balances in the deferred tax assets and liabilities accounts are zero. The enacted tax rate in effect at the time the deferred tax item is expected to reverse should be used to calculate deferred tax assets and liabilities. The difference in bad debts on the tax return being $30,000 less than on the books creates a deferred tax asset-current, which is valued as $30,000 x 40% = $12,000. The difference in depreciation on the books and on the tax return of $290,000 gives rise to a deferred tax liability-noncurrent, which is valued at $116,000 ($290,000 x 40%). Therefore, this answer is correct because deferred tax expense is equal to $104,000 ($116,000 - $12,000).
A is incorrect. Total tax expense is the current portion of tax expense plus the deferred portion of tax expense. The current portion of tax expense is calculated as taxable income times the current tax rate. The deferred portion of tax expense is derived by totaling the effects of the changes in the deferred tax assets and liabilities during the period. Because Lion is in its first year of operations, the opening balances in the deferred tax assets and liabilities accounts are zero. The enacted tax rate in effect at the time the deferred tax item is expected to reverse should be used to calculate deferred tax assets and liabilities. The difference in bad debts on the tax return being $30,000 less than on the books creates a deferred tax asset-current, which is valued as $30,000 x 40% = $12,000. The difference in depreciation on the books and on the tax return of $290,000 gives rise to a deferred tax liability-noncurrent, which is valued at $116,000 ($290,000 x 40%). Therefore, this answer is correct because deferred tax expense is equal to $104,000 ($116,000 - $12,000).
B is incorrect. Total tax expense is the current portion of tax expense plus the deferred portion of tax expense. The current portion of tax expense is calculated as taxable income times the current tax rate. The deferred portion of tax expense is derived by totaling the effects of the changes in the deferred tax assets and liabilities during the period. Because Lion is in its first year of operations, the opening balances in the deferred tax assets and liabilities accounts are zero. The enacted tax rate in effect at the time the deferred tax item is expected to reverse should be used to calculate deferred tax assets and liabilities. The difference in bad debts on the tax return being $30,000 less than on the books creates a deferred tax asset-current, which is valued as $30,000 x 40% = $12,000. The difference in depreciation on the books and on the tax return of $290,000 gives rise to a deferred tax liability-noncurrent, which is valued at $116,000 ($290,000 x 40%). Therefore, this answer is correct because deferred tax expense is equal to $104,000 ($116,000 - $12,000).
C is incorrect. Total tax expense is the current portion of tax expense plus the deferred portion of tax expense. The current portion of tax expense is calculated as taxable income times the current tax rate. The deferred portion of tax expense is derived by totaling the effects of the changes in the deferred tax assets and liabilities during the period. Because Lion is in its first year of operations, the opening balances in the deferred tax assets and liabilities accounts are zero. The enacted tax rate in effect at the time the deferred tax item is expected to reverse should be used to calculate deferred tax assets and liabilities. The difference in bad debts on the tax return being $30,000 less than on the books creates a deferred tax asset-current, which is valued as $30,000 x 40% = $12,000. The difference in depreciation on the books and on the tax return of $290,000 gives rise to a deferred tax liability-noncurrent, which is valued at $116,000 ($290,000 x 40%). Therefore, this answer is correct because deferred tax expense is equal to $104,000 ($116,000 - $12,000).
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