Question

Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no insurance expense will be deducted for tax purposes, but $42,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $108,000 at the end of 2014. There were no deferred taxes at the beginning of 2014.

What is the amount of the deferred tax liability at the end of 2014?
A. $43,200
B. $18,000
C. $0
D. $50,400

Answer 1

D. $50,400

Step-by-step explanation:

The computation of the deferred tax liability is shown below:

= Insurance expense for taxation purpose × rate of tax

= $126,000 × 0.40

= $50,400

Hence, the deferred tax liability is $50,400

Therefore the correct option is C.

Hence, the same is to be considered by applying the above formula in order to determine the accurate amount