Bronson Industries reported a deferred tax liability of $5 million for the year ended December 31, 2020, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the deferred tax liability will become payable. There are no other temporary differences in 2020-2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 15% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $30 million. Required: 1. Prepare the appropriate journal entry to record Bronson's income tax expense in 2021. 2. What effect, will enacting the change in the 2022 tax rate, have on Bronson's 2021 net income?

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Business

Bossy

28 October, 10:19

Bronson Industries reported a deferred tax liability of $5 million for the year ended December 31, 2020, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the deferred tax liability will become payable. There are no other temporary differences in 2020-2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 15% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $30 million. Required: 1. Prepare the appropriate journal entry to record Bronson's income tax expense in 2021. 2. What effect, will enacting the change in the 2022 tax rate, have on Bronson's 2021 net income?

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Rosemary Blevins · Answer 1

30th dec 2020 $ in million

Deferred Tax liability 5

30th dec 2021 $ in million

Deferred Tax liability as on 30dec2021 20*15% 3

Current Tax expense 30*25% 7.5

Journal entry $ in million $ in million

Deferred Tax liability 2

To Profit & loss 2

(Being deferred tax liability remeasured based on change in

Tax rate for the year 2022 in which liability is to be settled)