Question

Lake Corp., a newly organized company, reported pre-tax financial income of $100,000 for Year 1. Among the items reported in Lake's Year 1 income statement are the following: Premium on officer's life insurance with Lake as owner and beneficiary $15,000 Interest received on municipal bonds 20,000 The enacted tax rate for Year 1 is 30% and 25% thereafter. In its December 31, Year 1 balance sheet, Lake should report a deferred income tax liability of

Answer 1

Answer: $0

Step-by-step explanation:

A deferred income tax is simply referred to as the liability that's being recorded in the balance sheet when there's a difference in the income that's recognized by the company and the tax laws.

First, we should note that the premium on officer's life insurance will make no difference to the taxable income. Also, the interest received on municipal bonds which is $20,000 are usually exempted from the federal income tax and should not be taxable as well.

Therefore, based on the above explanation, Lake should report a deferred income tax liability of $0.