Question

During 2013, the Sanchez Co. incurred and recognized $30,000 in warranty expense on its income statement, but reported only $15,000 in warranty expense on its income tax return. The additional $15,000 will be deductible on the tax return during the next year when additional warranty claims are paid. Assuming a 40% tax rate, which of the following items would show up in the 2013 financial statements?

a. Deferred income tax asset of $15,000.
b. Deferred income tax liability of $15,000.
c. Deferred income tax asset of $6,000.
d. Deferred income tax liability of $6,000.

Answer 1

$6,000

Step-by-step explanation:

Given That

Total warranty expense = $30,000

Warranty expenses reported on its income tax return = $15,000

Additional amount deductible on the tax return during the next year = $15,000

Tax rate = 40%

Based on the above information

The computation of the income tax asset is shown below:

= Amount × tax rate

= $15,000 × 40%

= $6,000

By multiplying the amount with the tax rate we can get the deferred income tax assets i.e $6,000