JMR Corporation suffered a loss in 2013.As a result,the Corporation has an $87,000 accumulated tax loss carry forward.The current tax rate is 40%.The benefit was recorded in the accounts,as JMR believed it was more likely than not to be realized.In 2014 the tax rate goes down to 38% and JMR has not yet used the benefit.Which of the following statements is true?
A) No change to the accounts is necessary
B) Income tax expense should be increased by $1,740
C) Deferred income tax asset-benefit should be increased by $1,740
D) Deferred income tax asset-benefit will not change

Question

Quizplus · Accepted Answer

The deferred tax asset needs to be adjusted to reflect the new tax rate. The decrease in the tax rate from 40% to 38% reduces the value of the tax benefit, requiring an increase in income tax expense by $1,740 (which is 2% of $87,000).

JMR Corporation Suffered a Loss in 2013