Question

Alvis Corporation reports pretax accounting income of $360,000, but due to a single temporary difference, taxable income is only $220,000. At the beginning of the year, no temporary differences existed. Required: 1. Assuming a tax rate of 30%, what will be Alvis’s net income? 2. What will Alvis report in the balance sheet pertaining to income taxes?

Answer 1

Solution 1:

Pre tax accounting income = $360,000

Taxable income = $220,000

Taxable temporary differences = $360,000 - $220,000 = $140,000

Computation of Net Income - Alvis Corporation
Particulars		Amount
Income before taxes		$360,000.00
Income tax expense:
Current tax ($220,000*30%)	$66,000.00
Deferred tax ($140,000 *30%)	$42,000.00
		$108,000.00
Net Income		$252,000.00

Solution 2:

Alvis will report deferred tax liability of $42,000 and income tax payable of $66,000 in the balance sheet pertaining to income taxes