Kent Inc.’s reconciliation between financial statement and taxable income for 20X1 follows: Pre-tax financial income$150,000 Permanent difference (12,000) 138,000 Temporary difference—depreciation (9,000)Taxable income$129,000 Additional Information: At December 31, 20X0 20X1 Cumulative temporary difference(future taxable amounts)$11,000 $20,000 The enacted tax rate is 21%. Required:In its 20X1 income statement, what amount should Kent report as the deferred portion of income tax expense?

Answered: In its 20X1 income statement, what…

The income tax expense is the charge against the net taxable income of the taxpayer. The income tax expense is charged after applying the income tax rate on the amount of net taxable income for any particular year. The tax rate is provided or updated fiscally by Internal Revenue Service. There are two different portion of income tax expense for any tax year : Current portion and Deferred portion. The current portion and deferred portion, both these portions are reported in the income statement of the tax payer. The deferred portion of income tax expense is charged on the temporary difference due to depreciation charge. The deferred portion of income tax expense for the current tax year can be ascertained as : =temporary difference×tax rate=$9,000×21%=$1,890. The the deferred portion of income tax expense for the year 20X1 is calculated as $1,890.

At December 31,

Cumulative temporary difference
(future taxable amounts)

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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Kent Inc.’s reconciliation between financial statement and taxable income for 20X1 follows:


Pre-tax financial income	$	150,000
Permanent difference		(12,000	)
		138,000
Temporary difference—depreciation		(9,000	)
Taxable income	$	129,000

Additional Information:

The enacted tax rate is 21%.

Required:

In its 20X1 income statement, what amount should Kent report as the deferred portion of income tax expense?

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