Freeman, Inc., reported net income of $40,000 for 2015. However, the company's 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 2016. Assuming a 30% income tax rate, this situation would cause a 2015 deferred tax amount of:

Question

Business

Elisa Wolf

16 September, 10:52

Freeman, Inc., reported net income of $40,000 for 2015. However, the company's 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 2016. Assuming a 30% income tax rate, this situation would cause a 2015 deferred tax amount of:

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Valentina · Answer 1

This situation would cause a 2015 deferred tax amount of $900

Explanation:

Deferred tax liability: It is a liability which shows a difference between taxable income and the accounting earnings available before taxes.

In mathematically,

Deferred tax liability = Taxable income - accounting earnings available before taxes

In this question, we multiply the revenue item by an income tax rate

In mathematically,

= Revenue item * income tax rate

= $3,000 * 30%

= $900

Hence, this situation would cause a 2015 deferred tax amount of $900