Question

Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning...

Palmer Co. had a deferred tax liability balance due to a temporary difference at the beginning of 2014 related to $600,000 of excess depreciation. In December of 2014, a new income tax act is signed into law that lowers the corporate rate from 40% to 35%, effective January 1, 2016. If taxable amounts related to the temporary difference are scheduled to be reversed by $300,000 for both 2015 and 2016, Palmer should increase or decrease deferred tax liability by what amount?

a.   Decrease by $30,000

b.   Decrease by $15,000

c.   Increase by $15,000

d.   Increase by $30,000

why b ??

Homework Answers

Answer #1

Solution:

Total taxable temporary differences = $600,000

Temporary differences reversible in 2015 = $300,000

Temporary differences reversible in 2016 = $300,000

As new income tax act lowers the coroporate rate from 40% to 35% from 2016, therefore at the end of 2014, deferred tax liability related to temporary differences reversible in 2016 will be reduced by 5% (40% - 35%) of reversible differences.

Therefore decrease in deferred tax liability = $300,000 * 5% = $15,000

Hence option b is correct.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
2. Simpson Inc. had a balance in the Deferred Tax Liability account of $420 on December...
2. Simpson Inc. had a balance in the Deferred Tax Liability account of $420 on December 31, 2015, resulting from depreciation temporary differences. Differences in tax and accounting depreciation for assets purchased on January 1, 2015 is as follows: YEAR FINANCIAL DEPRECIATION TAX DEPRECIATION 2015 $2,000 $3,400 2016 $2,000 2,600 2017 $2,000 1,200 2018 $2,000 800 $8,000 $8,000 In addition to the 2016 depreciation temporary difference, Simpson expensed $1,000 of warranty costs that will be deducted for tax purposes when...
Weaver Company had a net deferred tax liability of $34,238 at the beginning of the year,...
Weaver Company had a net deferred tax liability of $34,238 at the beginning of the year, representing a net taxable temporary difference of $100,700 (taxed at 34 percent). During the year, Weaver reported pretax book income of $402,800. Included in the computation were unfavorable temporary differences of $50,700 and favorable temporary differences of $21,400. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year...
Weaver Company had a net deferred tax liability of $39,000 at the beginning of the year,...
Weaver Company had a net deferred tax liability of $39,000 at the beginning of the year, representing a net taxable temporary difference of $101,000 (taxed at 34%). During the year, Weaver reported pretax book income of $404,000. Included in the computation were favorable temporary differences of $51,000 and unfavorable temporary differences of $22,000. At the beginning of the year, Congress reduced the corporate tax rate to 21%. Weaver's deferred income tax expense or benefit for the current year would be:...
Whispering Inc.’s only temporary difference at the beginning and end of 2019 is caused by a...
Whispering Inc.’s only temporary difference at the beginning and end of 2019 is caused by a $3,630,000 deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2020 and 2021. The related deferred tax liability at the beginning of the year is $1,452,000. In the third quarter of 2019, a new tax rate of 20% is enacted...
A company had a temporary difference at the end of 2020 related to $200 of future...
A company had a temporary difference at the end of 2020 related to $200 of future deductible amounts. In December of 2020, a new income tax act is signed into law that increases the corporate rate from 30% to 40%, effective January 1, 2021. The company should (enter 1, 2, 3, or 4 that represents the correct answer): 1. Debit Income Tax Expense by $20. 2. Debit Deferred Tax Liability by $20. 3. Credit Deferred Tax Asset by $20. 4....
Robinson Company had a net deferred tax liability of $34,476 at the beginning of the year,...
Robinson Company had a net deferred tax liability of $34,476 at the beginning of the year, representing a net taxable temporary difference of $101,400 (taxed at 34%). During the year, Robinson reported pretax book income of $401,400. Included in the computation were favorable temporary differences of $51,400 and unfavorable temporary differences of $20,700. During the year, Congress reduced the corporate tax rate  from 34% to 21%. Robinson's deferred income tax expense or benefit for the current year would be: Net deferred...
Monty Inc.’s only temporary difference at the beginning and end of 2019 is caused by a...
Monty Inc.’s only temporary difference at the beginning and end of 2019 is caused by a $3,450,000 deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2020 and 2021. The related deferred tax liability at the beginning of the year is $1,380,000. In the third quarter of 2019, a new tax rate of 20% is enacted...
At the beginning of 2016, Norris Company had a deferred tax liability of $6,600, because of...
At the beginning of 2016, Norris Company had a deferred tax liability of $6,600, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 39% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $120,000 (revenues of $353,200 and expenses of $233,200);...
At December 31, 2016, Ozuna Inc. had the following deferred tax balances:             Deferred tax liability –...
At December 31, 2016, Ozuna Inc. had the following deferred tax balances:             Deferred tax liability – noncurrent                  $100,000             Deferred tax asset – noncurrent                          80,000             Valuation allowance                                               20,000 These deferred tax balances relate to two items.  First, Ozuna has recorded excess tax deductions related to its plant assets. At December 313, 2016, plant assets had a book value of $1,000,000 and a tax basis of $500,000.  Second, Ozuna had a NOL carryforward of $400,000 at December 31, 2016.  Ozuna determined the appropriate tax rate for recording deferred...
Bronson Industries reported a deferred tax liability of $6.25 million for the year ended December 31,...
Bronson Industries reported a deferred tax liability of $6.25 million for the year ended December 31, 2020, related to a temporary difference of $25 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....