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Robinson Company had a net deferred tax liability of $34,000 at the beginning of the year,...

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Accounting

Robinson Company had a net deferred tax liability of $34,000 atthe beginning of the year, representing a net taxable temporarydifference of $100,000 (taxed at 34%). During the year, Robinsonreported pretax book income of $400,000. Included in thecomputation were favorable temporary differences of $50,000 andunfavorable temporary differences of $20,000. During the year,Congress reduced the corporate tax rate to 21%. Robinson's deferredincome tax expense or benefit for the current year would be:

Net deferred tax benefit of $6,300.

Net deferred tax expense of $6,300.

Net deferred tax benefit of $6,700.

Net deferred tax expense of $6,700.

Angel Corporation reported pretax book income of $1,000,000.During the current year, the net reserve for warranties increasedby $25,000. In addition, tax depreciation exceeded bookdepreciation by $100,000. Finally, Angel subtracted a dividendsreceived deduction of $25,000 in computing its current year taxableincome. Angel's hypothetical tax expense in its reconciliation ofits income tax expense is:

=

$189,000.

$194,250.

$210,000.

$204,750.

Answer & Explanation Solved by verified expert
4.3 Ratings (871 Votes)

Particulars Taxable amount Tax rate Tax expense/ (benefit)
Opening deferred tax liability reversal        100,000 34%    (34,000)
Deferred tax liability at new rate on opening DTL        100,000 21%      21,000
Favorable difference           50,000 21%      10,500
Unfavorable difference           20,000 21%      (4,200)
Net tax benefit      (6,700)

Answer is net tax benefit of $6,700

Question 2:

Particulars Amount
Book income     1,000,000
Add: warranty           25,000
Less: excess depreciation       (100,000)
Less: dividends deduction         (25,000)
Taxable income        900,000
X tax rate 21%
Tax expense        189,000

Answer is $189,000
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