Question

Never, Inc., earns book net income before tax of $500,000. In computing its book income, Never expenses $50,000 more in warranty expense for book purposes than it is allowed to deduct for tax purposes. Never records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21% and no valuation allowance is required, what is Never's deferred income tax asset reported on its GAAP financial statements

Answer 1

$10,500

Step-by-step explanation:

Calculation for Never's deferred income tax asset reported on its GAAP financial statements

Using this formula

Deferred income tax asset =Expenses*U.S. tax rate

Let plug in the formula

Deferred income tax asset =$50,000*21%

Deferred income tax asset $10,500

Therefore Never's deferred income tax asset reported on its GAAP financial statements will be $10,500