Question

Pringle Corporation reported $200,000 in revenues in its 2016 financial statements, of which $88,000 will not be included in the tax return until 2017. The enacted tax rate is 40% for 2016 and 35% for 2017. What amount should Pringle report for deferred income tax liability in its balance sheet at December 31, 2016?

(a)$30,800
(b)$35,200
(c)$39,200
(d)$44,800

Answer 1

A) $30,800

Step-by-step explanation:

deferred income tax liability = deferred income x next year's tax rate = $88,000 x 35% = $30,800

A deferred income tax liability occurs when a corporation's income statement shows a certain amount following US GAAP, but the rules used by the IRS determine a different amount.