Answered: ary or permanent book-tax differences.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Prance, Inc., earned pretax book net income of $1,265,000 in 2020. Prance acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $126,500. Prance reported no other temporary or permanent book-tax differences. The pertinent U.S. Federal corporate income tax rate is 21%, and Prance earns an after-tax rate of return on capital of 8%.

Enter below Prance's 2020 deferred tax expense and any deferred tax asset or liability.

If required, round your answer to nearest whole value.

Table in image attached

Balance Sheet
Deferred tax liability
Income Statement
Deferred tax expense
Prance's total tax expense will consist of the following:
Current tax expense
Deferred tax expense
Total tax expense

Expert Solution

Step 1

Deferred tax expense refers to the effect of income tax occured on the balance sheet of the company which is formulated out of the taxable income computed on the basis of the company's method of accounting and on the basis of tax laws as well.