A company's income statement reported net income of $80,000 during 2016. The income tax return excluded a revenue item of $6,000 (reported on the income statement) because under the tax laws the $6,000 would not be reported for tax purposes until 2017. Which of the following statements is incorrect assuming a 35% tax rate?
A)Income tax expense on the income statement exceeds the tax liability to the IRS.
B)The $6,000 of revenue creates a deferred tax liability.
C)A $2,100 deferred tax liability is reported as of December 31, 2016.
D)Income tax expense on the income statement is $25,900.

Question

Quizplus · Accepted Answer

The income tax expense on the income statement should be calculated as follows: $80,000 net income plus $6,000 deferred revenue equals $86,000 taxable income for the income statement. At a 35% tax rate, the income tax expense would be $30,100, not $25,900.

A Company's Income Statement Reported Net Income of $80,000 During