- 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?
answer given:
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
Why wouldn’t you just calculate for tax expense: pretax inc * 20% as it is calculated in the next question?
An analyst has gathered the following tax information:
Year 1 Year 2 Pretax Income $60,000 $60,000 Taxable Income $50,000 $65,000
The current tax rate is 40%. Assume the tax rate is reduced to 30% and the change is enacted at the beginning of Year 2.
In year 1, what are the taxes payable and what is the deferred tax liability (DTL)?
tax expense is pretax * tax = (60000*0.40) = 20 000
DTL is (60000 - 50000) * 0.3 = 3000