In the previous year, a firm failed to record premium amortization of $40,000 and $30,000,...
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Accounting
In the previous year, a firm failed to record premium amortization of $40,000 and $30,000, respectively, on its bonds payable and held to maturity bond investments. These errors affect both income before tax and taxable income. The firm's tax rate is 30%. As a result of this error, net income was:
Understated by $7,000.
Overstated by $7,000.
Understated by $33,000.
Overstated by $33,000.
Answer given below. Please show how they find Deferred tax liability.
| Premium on bonds payable | 40,000 | |
| Premium on bond investments | 30,000 | |
| Deferred tax liability | 3,000 | |
| Retained earnings | 7,000 |
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