A company's income statement reported net income of $80,000 during 2014. 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 2015. 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, 2014.
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 + $6,000 deferred revenue = $86,000 taxable income for accounting purposes. The tax expense would be 35% of $86,000, which is $30,100, not $25,900.

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