Schweser Tax

Taxable income = $100,000 Pretax Income = $120,000 Current tax rate = 20% Tax rate when reversal occurs will be 10% What is the TAX EXPENSE? A) $24,000 B) $22,000 Answer B: Isn’t Tax expense = Current tax rate * PRETAX INCOME ?

Income Tax Expense = Taxes Payable + DTL - DTA Taxes Payable = 100K*20% = 20k DTL = $4,000 (Temporary difference between taxes paid on tax return vs. income statement) Tax Rate when reversal is expected = 10% So, DTL is reduced to $2k (Reduction in Taxe Rate = Reduction in DTL = Reduction in Income Tax Expense) Income Taxes Expense = 20k + 2k = 22k

Income Tax Expense = Taxes Payable + DTL - DTA Taxes Payable = 100K*20% = 20k DTL = $4,000 (Temporary difference between taxes paid on tax return vs. income statement) Tax Rate when reversal is expected = 10% So, DTL is reduced to $2k (Reduction in Taxe Rate = Reduction in DTL = Reduction in Income Tax Expense) Income Tax Expense = 20k + 2k = 22k