Question

Plutonic Inc. had $400 million in taxable income for the current year. Plutonic also had an increase in deferred tax liabilities of $50 million and recognized tax expense of $80 million. The company is subject to a tax rate of 40%. The change in deferred tax assets (ignoring any valuation allowance) was a/an: Multiple Choice increase of $30 million. increase of $130 million. decrease of $30 million. decrease of $130 million.

Answer 1

$130 million

Step-by-step explanation:

This can be calculated as follows:

Company income tax = Taxable income × Tax rate

Company income tax = $400,000,000 × 40% = $160,000,000

Tax expenses recognized = $80,000,000

Additional differed tax = Company income tax - Tax expenses recognized

Additional differed tax = $160,000,000 - $80,000,000 = $80,000,000

Total differed tax = Increase in deferred tax liabilities + Additional differed tax

Total differed tax = $50,000,000 + $80,000,000 = $130,000,000

Therefore, the change in deferred tax assets was an of increase of $130 million.