Question

During its first year of operations a company recorded accrued expenses totaling $375,000 for book purposes. For tax purposes, $175,000 of the expenses are deductible during the first year of operations and $200,000 are deductible during the second year of operations. The enacted income tax rate was 21% during the first year of operations and 25% during the second year of operations. The income tax expense to be reported in the income statement for the first year of operations is: ________

Answer 1

c. asset of $50,000

Step-by-step explanation:

Note: The correct question is "The balance sheet at the end of the first year of operations will report a deferred tax: asset of $42,000, liability of $42,000, liability of $50,000, asset of $50,000"

Deferred tax assets = Future deductible amount * Tax rate of future year

Deferred tax assets = $200000* 25%

Deferred tax assets = $50,000

So, the balance sheet at the end of the first year of operations will report a deferred tax asset of $50,000.