Use the following information for questions 70 through 72.
Lyons Company deducts insurance expense of $126,000 for tax purposes in 2014, but the expense is not yet recognized for accounting purposes. In 2015, 2016, and 2017, no insurance expense will be deducted for tax purposes, but $42,000 of insurance expense will be reported for accounting purposes in each of these years. Lyons Company has a tax rate of 40% and income taxes payable of $108,000 at the end of 2014. There were no deferred taxes at the beginning of 2014.
-What is the amount of income tax expense for 2014?

Question

Quizplus · Accepted Answer

The income tax expense for 2014 is calculated as the sum of income taxes payable and the deferred tax liability. The deferred tax liability arises because the insurance expense is deducted for tax purposes before it is recognized for accounting purposes. The deferred tax liability is $126,000 * 40% = $50,400. Therefore, the income tax expense is $108,000 + $50,400 = $158,400.

Use the Following Information for Questions 70 Through 72