Question

Analyzing Tax Expense

Crestview Holdings reported the following in its 2015 financial statements.

$ millions 2015 2014
Total deferred tax assets $843 $764
Total deferred tax liabilities 4,211 3,126
Current provision for income taxes 1,427 134


Compute the deferred tax expense for the company for 2015.

Answer 1

The deferred tax expense for Crestview Holdings in 2015 is $421 million.

Step-by-step explanation:

To compute the deferred tax expense for Crestview Holdings in 2015, we need to calculate the change in deferred tax assets and deferred tax liabilities from 2014 to 2015. The formula for deferred tax expense is:

Deferred Tax Expense = (Change in Deferred Tax Assets - Change in Deferred Tax Liabilities) + Current Provision for Income Taxes

Using the given information:

• Change in Deferred Tax Assets = $843 million - $764 million = $79 million
• Change in Deferred Tax Liabilities = $4,211 million - $3,126 million = $1,085 million
• Current Provision for Income Taxes = $1,427 million

Plugging these values into the formula, we get:

Deferred Tax Expense = ($79 million - $1,085 million) + $1,427 million = $421 million

Answer 2

Deferred tax expense in 2015 is $1,006 million

Step-by-step explanation:

It is imperative to calculate the actual deferred tax liabilities in each year before proceeding to compute the deferred tax expense for 2015.

Tax year 2014

Total deferred tax liabilities $3,126

less;deferred tax asset ($764)

Actual deferred tax liabilities $2,362

Tax year 2015

Total deferred tax liabilities $4,211

less;deferred tax asset ($843)

Actual deferred tax liabilities $3368

The deferred tax expense for the year 2015 is the increase in actual deferred tax liabilities in 2015 that $1,006 million($3368-$2,362)

As result there would be a charge for deferred tax liabilities of $1,006 million in the year 2015