C is corrent. The income tax provision (expense) must be reported in two components: the amount currently payable (current) and the tax effects of temporary differences (deferred). The deferred portion should be based on future enacted tax rates. The depreciation difference results in future taxable amounts totaling $200,000 in year 3
-12, while the warranty difference results in future deductible amounts totaling $50,000 in year 3
-12 Deferred tax expense is computed as follows:
| Increase in deferred tax liability |
|
|
| |
$200,000 future taxable amount × 25% | |
= |
$50,000 |
| Increase in deferred tax asset |
|
|
| |
($50,000) future deductible amount × 25% | |
= |
(12,500) |
| Deferred portion of income tax expense |
|
$37,500 |
A is incorrect. The income tax provision (expense) must be reported in two components: the amount currently payable (current) and the tax effects of temporary differences (deferred). The deferred portion should be based on future enacted tax rates. The depreciation difference results in future taxable amounts totaling $200,000 in year 3
-12, while the warranty difference results in future deductible amounts totaling $50,000 in year 3
-12 Deferred tax expense is computed as follows:
| Increase in deferred tax liability |
|
|
| |
$200,000 future taxable amount × 25% | |
= |
$50,000 |
| Increase in deferred tax asset |
|
|
| |
($50,000) future deductible amount × 25% | |
= |
(12,500) |
| Deferred portion of income tax expense |
|
$37,500 |
B is incorrect. The income tax provision (expense) must be reported in two components: the amount currently payable (current) and the tax effects of temporary differences (deferred). The deferred portion should be based on future enacted tax rates. The depreciation difference results in future taxable amounts totaling $200,000 in year 3
-12, while the warranty difference results in future deductible amounts totaling $50,000 in year 3
-12 Deferred tax expense is computed as follows:
| Increase in deferred tax liability |
|
|
| |
$200,000 future taxable amount × 25% | |
= |
$50,000 |
| Increase in deferred tax asset |
|
|
| |
($50,000) future deductible amount × 25% | |
= |
(12,500) |
| Deferred portion of income tax expense |
|
$37,500 |
D is incorrect. The income tax provision (expense) must be reported in two components: the amount currently payable (current) and the tax effects of temporary differences (deferred). The deferred portion should be based on future enacted tax rates. The depreciation difference results in future taxable amounts totaling $200,000 in year 3 -12, while the warranty difference results in future deductible amounts totaling $50,000 in year 3 -12 Deferred tax expense is computed as follows:
| Increase in deferred tax liability |
|
|
| |
$200,000 future taxable amount × 25% | |
= |
$50,000 |
| Increase in deferred tax asset |
|
|
| |
($50,000) future deductible amount × 25% | |
= |
(12,500) |
| Deferred portion of income tax expense |
|
$37,500 |
