You, CPA, are working on the deferred tax section for Underhill Ltd., a publicly listed company, and
Question:
You, CPA, are working on the deferred tax section for Underhill Ltd., a publicly listed company, and its June 30, 20X6, year end. You have gathered the following information: · NBV of capital assets at year end: $40,000 at June 30, 20X6; $30,000 at June 30, 20X5 · UCC of assets at year end: $30,000 at June 30, 20X6; $38,000 at June 30, 20X5 · Accrued warranty liability (current): $0 at June 30, 20X6; $20,000 at June 30, 20X5 The effective tax rate used for the June 30, 20X5, fiscal year was 20%. Corporate tax rates decreased, and at June 30, 20X6, the effective tax rate was 18%. There is strong speculation that the tax rate will fall to 16% by June 30, 20X7. Assume that Underhill has recorded its deferred tax entries correctly in the past. Which one of the following entries is needed to record deferred taxes for the fiscal year ended June 30, 20X6?
options:
a) Dr. Retained earnings, opening $560, Dr. Deferred tax provision $6,840; Cr. Deferred tax (liability) $7,400
b) Dr. Deferred tax provision $7,200; Cr. Deferred tax (liability) $7,200
c) Dr. Deferred tax provision $7,400; Cr. Deferred tax (liability) $7,400
d) Dr. Deferred tax provision $7,400; Cr. Deferred taxes, short term (liability) $1,600, Cr. Deferred taxes, long term (liability) $5,800