B is corrent. Per ASC Topic 740, income tax expense includes the following components:
| | 1. | Current tax expense or benefit | | | 2. | Deferred tax expense or benefit, exclusive of (5) below | | | 3. | Investment tax credits and grants | | | 4. | The benefits of operating loss carryforwards | | | 5. | Adjustments of a deferred tax liability or asset for enacted changes in tax laws or a change in the tax status of an enterprise. | | | | |
Since current tax expense/benefit depends on the tax rate, a change in the income tax rate for year 3 will affect the amount of income tax assessed in year 3.A is incorrect. Penalties assessed on income tax deficiencies are excluded from the computation of income tax expense.C is incorrect. A change in the year 4 tax rate could affect deferred income tax expense, not current.D is incorrect. Interest assessed on income tax deficiencies is excluded from the computation of income tax expense. |
