Question

At the December 31, 2015 statement of financial position date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2016, a future taxable amount will occur and

a. pretax financial income will exceed taxable income in 2016.
b. Unruh will record a decrease in a deferred tax liability in 2016.
c. total income tax expense for 2016 will exceed current tax expense for 2016.
d. Unruh will record an increase in a deferred tax asset in 2016.

Answer 1

The recovery of the accrued receivable for Unruh Corporation will result in a future taxable amount, the increase in the deferred tax liability, total income tax expense for 2016 will exceed current tax expense for 2016.

Step-by-step explanation:

When the accrued receivable is recovered in 2016, a future taxable amount will occur. This means that the income for financial reporting purposes will be greater than taxable income in 2016.

In this situation, Unruh Corporation will record an increase in a deferred tax liability in 2016 because it will have to pay taxes on the recovered asset.

As a result of the increase in the deferred tax liability, total income tax expense for 2016 will exceed current tax expense for 2016.