Question

The following facts relate to Oriole Corporation.

1.		Deferred tax liability, January 1, 2020, $36,000.
2.		Deferred tax asset, January 1, 2020, $12,000.
3.		Taxable income for 2020, $126,000.
4.		Cumulative temporary difference at December 31, 2020, giving rise to future taxable amounts, $276,000.
5.		Cumulative temporary difference at December 31, 2020, giving rise to future deductible amounts, $114,000.
6.		Tax rate for all years, 20%. No permanent differences exist.
7.		The company is expected to operate profitably in the future.

(a)

Compute the amount of pretax financial income for 2020.

Pretax financial income

$

Answer 1

Beginning cumulative temporary difference (DTL)= 36,000/20% = 180,000

Beginning cumulative temporary difference (DTA) = 12,000/ 20% = 60,000

Cumulative temporary difference at Dec31, 2020 resulting in future taxable amounts	276,000
Cumulative temporary difference at Jan 1, 2020	(180,000)
Originating difference which will result in future taxable amounts	96,000
Cumulative temporary difference at De 31, 2020 resulting in future deductible amounts	114,000
Cumulative temporary difference at Jan 1, 2020	(60,000)
Originating difference which will result in future deductible amounts	54,000

Now,

Pretax financial income + Originating difference which will result in future taxable amounts - Originating difference which will result in future deductible amounts = Taxable income for the year

X - 96,000 + 54,000 = 126,000

Thus, Pretax financial income = 168,000