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3 November, 02:33

obinson Company had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000 (taxed at 34 percent). During the year, Robinson reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000. During the year, Congress reduced the corporate tax rate to 21 percent. Robinson's deferred income tax expense or benefit for the current year would be:

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  1. 3 November, 04:51
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    Robinson's deferred income tax expense or benefit for the current year would be $6,700

    Explanation:

    The computation of the deferred income tax expense or benefit for the current year is shown below:

    = Deferred tax expense - adjustment of tax based on the tax rate

    where,

    Deferred tax expense = (Favorable temporary differences - unfavorable temporary differences) * corporate tax rate

    = ($50,000 - $20,000) * 21%

    = $6,300

    And, the adjustment of tax equals to

    = Net taxable temporary difference * (Tax rate - corporate tax rate)

    = $100,000 * (34% - 21%)

    = $13,000

    Now put these values to the above formula

    So, the value would equal to

    = $6,300 - $13,000

    = $6,700
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