Amethyst Company's income statement shows net profit before income tax of $56 000. The company's tax return shows taxable income of $64 000. Company's tax rate is 30%. Which of the following entries would be used to record tax expense and tax payable?
A)Debit Income tax expense $19 200 and credit Cash $19 200.
B)Debit Income tax expense $16 800, debit Future income tax benefit $2 400 and credit Income tax payable $19 200
C)Debit Deferred tax liability $2 400, debit Future income tax benefit $16 800 and credit Income tax payable $19 200.
D)Debit Income tax expense $19 200, credit Deferred tax liability $2 400 and credit Income tax payable $16 800.

Question

Quizplus · Accepted Answer

The tax expense is based on accounting profit ($56,000 x 30% = $16,800), while the tax payable is based on taxable income ($64,000 x 30% = $19,200). The difference of $2,400 is recorded as a future income tax benefit.

Amethyst Company's Income Statement Shows Net Profit Before Income Tax