Chapter 16, Problem 16.10BYP

1.

To determine

Deferred tax liability

When the Income Tax Expense account i.e. the estimated income tax amount is less than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be credited to Deferred Tax Liability account.

To explain:  The reason behind the exclusion of deferred tax liabilities from calculation of debt equity ratio

2.

To determine

The change in debt equity ratio due to above argument

3.

To determine

To explain:  The reason behind for not exclusion of deferred tax liabilities from calculation of debt equity ratio