Question

For calendar year 3, Clark Corp. had depreciation of $300,000 on its income statement. On its Year 3 tax return, Clark had depreciation of $500,000. Clark's income statement also included $50,000 accrued warranty expense that will be deducted for tax purposes when paid in a future year. Clark's enacted tax rates are 30% for Year 3 and 25% for future years. These were Clark's only temporary differences. In Clark's Year 3 income statement, the deferred portion of its provision for income taxes should be:

Answer 1

The answer is: $41,000

Step-by-step explanation:

The deferred portion of its provision for income taxes can be calculated by = ending deferred tax liability - ending deferred tax asset

• differed tax liability = ($80,000 x 30%) + ($70,000 x 25%) +($50,000 x 25%)= $24,000 + $17,500 + $12,500 = $54,000
• deferred tax asset = ($10,000 x 30%) + ($15,000 x 25%) + ($25,000 x 25%)= $3,000 + $3,750 + $6,250 = 13,000

Deferred portion of its provision for income taxes = $54,000 - $13,000 = $41,000