Freeman, Inc., reported net income of $40,000 for 20A. The income tax return excluded a revenue item of $3,000 (reported on the income statement) because under the tax laws the $3,000 would not be reported for tax purposes until 20B. Assuming a 30% income tax rate, this situation would cause a 20A deferred tax amount of A) $3,000 (debit). B) $3,000 (credit). C) $ 900 (debit). D) $ 900 (credit).

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Business

Markus Montes

14 July, 20:08

Freeman, Inc., reported net income of $40,000 for 20A. The income tax return excluded a revenue item of $3,000 (reported on the income statement) because under the tax laws the $3,000 would not be reported for tax purposes until 20B. Assuming a 30% income tax rate, this situation would cause a 20A deferred tax amount of A) $3,000 (debit). B) $3,000 (credit). C) $ 900 (debit). D) $ 900 (credit).

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Derrick Small · Answer 1

The correct option is D,$900 (credit)

Explanation:

The revenue omitted would be increase revenue in the year 20B, as result net income would also be increased, hence the tax impact of it in the future that should be taken record of now is a deferred tax liability, a tax payable in the year 20B.

The amount of tax deferred is the omitted revenue multiplied by the tax rate of 30% i. e

deferred tax = $3000*30%=$900

This would be credited to deferred tax liability and debited income tax expense.