Deferred Taxes

An analyst gathered the following information about a company: Taxable income = $100,000 Pretax income = $120,000 Current tax rate = 20 % Tax rate when the reversal occurs will be 10 % What is the company’s tax expense? A) $24,000. B) $10,000. C) $12,000. D) $22,000.

Pretax incom>taxable income, that means you have a DTL of 20,000 income tax expense = 20%*100+10%*20=22, must be D

you’re right Deferred tax liability = (120,000-100,000) * 0.1 = 2,000 Tax expense = current tax rate * taxable income + deferred tax liability 0.2 * 100,000 + 2,000 = 22,000 can you tell me how this is going to work out in terms of the 3 types of accounts? is it going to be Equity (income tax expense) -22000 Liabilities (deferred tax liability) +2000 Assets (cash) -20000 ?

Remember equity gets served with what’s remaining of the NI after payment of dividends. Cash (assets) go down by the amount of taxes payable, right, 20,000. DTL, right, increases by 2000

excellent, thanks