Deferred Taxes

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  • #188819
    Anonymous
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    Dunn Co.’s income statement reported $90,000 income before provision for income taxes. To compute the provision for federal income taxes, the following data are provided:

    Rent received in advance $16,000

    Income from exempt municipal bonds $20,000

    Depreciation deducted for income tax purposes in excess of depreciation reported for financial statement purposes $10,000

    Enacted corporate income tax rate 30%

    What amount of current income tax liability should be reported in Dunn’s December 31 balance sheet?

    a. $28,800

    b. $22,800

    c. $25,800

    d. $18,000

    Explanation:

    Choice “b” is correct. The current tax liability is computed by multiplying the tax rate of 30% times taxable income.

    Pretax financial income $90,000

    Permanent difference:

    Tax exempt bonds income (20,000)

    Pretax financial income subject to tax 70,000

    Temporary differences:

    Rent (taxable when received) 16,000

    Depreciation (tax deduction) (10,000)

    Taxable income 76,000

    Tax rate × 30%

    Tax liability $22,800

    So my question is why are you adding the $16,000? I have been having a lot of problems with DTAs and DTLs. I mostly don’t get when something would be the DTA or DTL. So if you could help me with this question and the overall topic of DTAs and DTLs that would be much appreciated.

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