Question

In the last example, we determined that Delta has a DTA of $35,000 related to the $100,000 NOL in 2015. In 2016, it decides to apply (use up) the DTA (carryforward). The company has book income of $200,000. No book/tax differences. So, Delta reports taxable income of $200,000 before considering the effect of its NOL. How much is I.T. payable for 2016

Answer 1

The I.T. payable for 2016 is $35,000

Step-by-step explanation:

Use the following formula to calculate the IT payable for 2016

IT payable = Tax on Income - DTA balance

Where

Tax on Income = Income x Tax rate = $200,000 x 35% = $70,000

DTA balance = $35,000

Placing values in the formula

IT payable = $70,000 - $35,000

IT payable = $35,000