Xanos Corporation faced a 50% marginal tax rate last year and showed the following financial and tax reporting info: DTA: $1,000 DTL: $5,000 Base only on this information and the news that the tax rate will decline to 40%, which of the following statements is TRUE? Answer: Deferred tax liability is reduced by $1,000 and income tax expense is reduced by $800. How the heck did they come up with the answer? The “answer people” are really killing me here!
The DTL is based on 50% of X, or 50% of $10k. tax will now be 40% of $10K, or $4K, for a $1K reduction. For the second part eithet do the same calc on each side and combine the change, or do the calc on the net of the DTL and DTA.