Tapestry Co. began operations in 2019. The accounting income is $200,000 and the taxable income is $170,000. The only permanent difference is a $50,000 fine which is never deductible as an expense for tax purposes.

The tax rate for 2019 was 20%. In December, 2019 a new 30% tax rate was enacted for future years beginning in 2020.

QUESTION

What is the deferred tax expense for 2019?

Select one:

a. $9,000 debit

b. $16,000 debit

c. $24,000 credit

d. $24,000 debit

e. none of the above

Beanie and Cecil Co. started operations in 2018 (last year) and the reconciliation between accounting income and taxable income for 2018 and 2019 shows:

2018 2019

Accounting income $200,000 $300,000

Temporary differences 80,000 (20,000)

Taxable income $280,000 $280,000

The tax rate for 2018 and 2019 was 20%. In December, 2019 a new 30% tax rate was enacted for future years beginning in 2020.

QUESTION

What amount would be shown on the balance sheet at December 31, 2019 (this year) for deferred tax?

Select one:

a. $6,000 Deferred tax asset

b. $6,000 Deferred tax liability

c. $12,000 Deferred tax asset

d. $18,000 Deferred tax asset

e. none of the above

On January 1, 2019, Sonato Co. received $30,000 in rent from a tenant for 3 years - 2019, 2020 and 2021. The entire amount was taxed when received in 2019 but is earned equally over the 3 years for accounting purposes.

The tax rate in 2019 was 25% and new rate of 20% was enacted in 2020 for 2020 and later years.

QUESTION

At December 31, 2019, the balance sheet for Sonato Co. would show what amount for Deferred Tax?

Select one:

a. Deferred tax asset for $4,000

b. Deferred tax liability for $4,000

c. Deferred tax asset for $5,000

d. Deferred tax liability for $5,000

e. None of the above

For 2020, its first year of operations, Edmonton Co. prepared the following reconciliation between accounting income and taxable income:

Accounting income $ 500,000

Temporary difference:

Estimated lawsuit expense 400,000

Taxable income $ 900,000

The estimated lawsuit expense of $400,000 will be deductible for tax purposes in 2022 when it is expected to be paid after the court case is settled. The income tax rate is 20% for 2020. In December 2020, enacted tax rates were 25% for 2021 and 30% for 2022.

QUESTION

What is the deferred tax amount on the December 31, 2020 balance sheet?

Select one:

a. $80,000 Deferred tax asset

b. $100,000 Deferred tax asset

c. $120,000 Deferred tax asset

d. $80,000 Deferred tax liability

e. none of the above