Question

In its year 3 income statement, Cere Co. reported income before income taxes of $300,000. Cere estimated that, because of permanent differences, taxable income for year 3 would be $280,000. During year 3 Cere made estimated tax payments of $50,000, which were debited to income tax expense. Cere is subject to a 30% tax rate. What amount should Cere report as income tax expense?

Answer 1

$84,000

Step-by-step explanation:

In this case there will arise deferred tax asset as the book profit is more than taxable profit, now

Tax liability = $300,000 X 30% = $90,000

Though out of which deferred tax asset = ($300,000 - $280,000) X 30% = $6,000

Now tax expense for the year = $280,000 X 30% = $84,000

Therefore, Cere should report a tax expense of $84,000

Even though the liability is of $90,000

Final Answer

$84,000