In Year 1, a company has revenues of $600,000 and expenses of $400,000. Of the expenses, $70,000
Question:
In Year 1, a company has revenues of $600,000 and expenses of $400,000. Of the expenses, $70,000 represents a warranty on a company product. However, the company only paid $30,000 as a result of this warranty. The remainder is expected to be paid in a future year in which company officials believe there is a 60% chance that the company will have taxable income to be reduced by this warranty cost. The relevant tax rate is 30% for Year 1 and 32% for periods after that. What is the total amount of income tax expense to be recognized in Year 1?
2. The Foyer Company had an enacted income tax rate of 25%. The company ended Year 1 with a deferred income tax liability of $30,000, a deferred income tax asset of $40,000, and a valuation allowance of $9,000. The enacted tax rate at the beginning of Year 2 was raised to 28%. The company ended Year 2 with a deferred income tax liability of $60,000, a deferred income tax asset of $30,000, and a valuation allowance of $14,000. On the company's Year 2 income statement, what is the amount of income tax expense (deferred) that is reported?
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw