Question

Lynch Company had a net deferred tax asset of $69,088 at the beginning of the year, representing a net deductible temporary difference of $203,200 (taxed at 34 percent). During the year, Lynch reported pretax book income of $812,800. Included in the computation were favorable temporary differences of $23,200 and unfavorable temporary differences of $51,600. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Lynch's deferred income tax expense or benefit for the current year would be: rev: 12_05_2019_QC_CS-192775

Answer 1

Net deferred tax benefit of $20,452

Step-by-step explanation:

[( $23,200-$51,600 ) ×21%]

=$28,400×21%

=$5,964 net deferred tax benefit for the current year

($203,200×(34%-21%)13%) = $26,416 reduction in the deferred tax asset)

(34%-21%)

=$26,416-$5,964 = $20,452

Net deferred tax benefit of $20,452

The net deferred tax benefit for the current year is $5,964 [( $23,200-$51,600 ) ×21%].

The beginning balance in the deferred tax asset account must be adjusted downward to reflect the change in the tax rate by 13 percentage point ($203,200×13%) = $26,416 reduction in the deferred tax asset)