Question

Harrison Corporation reported pretax book income of $758,000. Tax depreciation exceeded book depreciation by $595,000. In addition, the company received $311,000 of tax-exempt municipal bond interest. The company’s prior-year tax return showed taxable income of $74,000. Assuming a tax rate of 21 percent, compute the company’s deferred income tax expense or benefit.

Answer 1

DEFERRED TAX ASSET ( BENEFIT ) = $ 15,540
EXPLANATION IS GIVEN BELOW :
	Amount( $ )
pretax book income	$ 758,000
less: excess tax depreciation	( $ 595,000)
less: tax-exempt interest income	( $ 311,000)
NET OPERATING LOSS	( $ 148,000 )
net operating income carryback to prior year	$ 74,000
Tax rate	21%
current income tax benefit ( $ 90,000 * 21 % )	$ 15,540
NET OPERATING LOSS	( $ 148,000)
add: net operating income carryback to prior year	$ 74,000
remaining net operating loss	( $ 74,000 )
the remaining $ 74,000 net operating loss carryover will be
recorded as deferred tax asset ( benefit ) of $ 15,540 { $ 74,000* 21% }