A company's 2014 income tax return reported a $75,000 tax liability. During 2014, the deferred income tax liability account increased $9,000. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The income tax liability reported on the tax return is the actual amount owed for the year based on taxable income calculated using tax laws and rates in effect for the year. Therefore, the income tax expense on the income statement should reflect the actual amount of taxes owed. The increase in deferred income tax liability account means that the company has recognized the tax effect of a future taxable event in the current year, which increases the tax liability on the balance sheet but does not affect the actual taxes owed for the year. Therefore, the income tax expense on the income statement should be the sum of actual taxes owed ($75,000) and the increase in the deferred tax liability ($9,000), which is $84,000 (D).

A Company's 2014 Income Tax Return Reported a $75,000 Tax