Question

Shear, Inc., began operations in Year 1. Included in Shear’s Year 1 financial statements were credit loss expenses on accounts receivable of $1,400 and profit from an installment sale of $2,600. For tax purposes, the credit losses will be deducted and the profit from the installment sale will be recognized in Year 2. The applicable tax rate is 25%. In its Year 1 income statement, what amount should Shear report as deferred income tax expense?

Answer 1

$300

Step-by-step explanation:

Calculation for what amount should Shear report as deferred income tax expense

Using this formula

Deferred income tax expense=(installment sale Profit-Loss expenses on accounts receivable)*Tax rate

Let plug in the formula

Deferred income tax expense=(2,600-1,400)*25%

Deferred income tax expense=1,200*25%

Deferred income tax expense=$300

Therefore the amount that Shear should report as deferred income tax expense will be $300