Mock Exam Q

This was the Q in mock exam. I’ll try to recreate through information in the feedback. A company recognized actual 100K expense on product warranty. During the same year company recognized 200K warranty expense on financial statements. What is DTA ? tax rate =35%. What I think: Since, 100K actual expense is incurred–> this is reversal amount and DTA will reduce by 100*0.35 = 35K At the same time 220K warranty expense is recognized on f/s.–> creating a DTA = 200*0.35=70K ==> Net DTA at end of this year = 70-35=35K ANS: DTA=200*0.35=70k Why is this correct ???

I guess it’s the difference between Net DTA and DTA

I don’t remember this one but I agree, since they were just asking for DTA and not cumulative DTA (made that term up)…

im pretty sure that this is the same question but my feedback says $100,000*.35=$35,000 is the answer.

The trick is that Income for financial statement purposes was higher than Income for tax purposes. This is based on the fact that warranty expenses were overestimated, by 100K, which in turn created Tax Overpayment (Tax credit aka DTA) equal to 35% * 100k. Thus the answer is 35,000 DTA