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.
-Assuming that income taxes payable for 2015 is $144,000, the income tax expense for 2015 would be what amount?

Question

Quizplus · Accepted Answer

The income tax expense for 2015 is calculated by adjusting the income taxes payable for the change in the deferred tax liability. The deferred tax liability at the end of 2014 is $50,400 (40% of $126,000). In 2015, this liability decreases by $16,800 (40% of $42,000), resulting in a deferred tax liability of $33,600 at the end of 2015. The change in deferred tax liability ($16,800) is subtracted from the income taxes payable ($144,000) to calculate the income tax expense for 2015, which is $127,200.

Use the Following Information for Questions 70 Through 72