Question

A company's income statement reported net income of $80,000 during 2016. The income tax return excluded a revenue item of $6,000 (reported on the income statement) because under the tax laws the $6,000 would not be reported for tax purposes until 2017. Which of the following statements is incorrect assuming a 21% tax rate?

a. Income tax expense on the income statement exceeds the tax liability to the IRS.
b. The $6,000 of revenue creates a deferred tax liability.
c. A $2,100 deferred tax liability is reported as of December 31, 2014.
d. Income tax expense on the income statement is $25,900.

Answer 1

d. Income tax expense on the income statement is $25,900.

Step-by-step explanation:

Calculation to determine the statements that is incorrect assuming a 21% tax rate

INCOME TAX EXPENSE

Using this formula

Income tax expense=Net income*Tax rate

Let plug in the formula

Income tax expense=$80,000*.21

Income tax expense=$16,800

Based on the above calculationThe income tax expense ($80,000 × .21) on the income statement is $16,800

Therefore the statements that is incorrect assuming a 21% tax rate is

INCOME TAX EXPENSE ON THE INCOME STATEMENT is $25,900