Never, Inc., earns book net income before tax of $500,000. In computing its book income, Never deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes. Never records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 35% and no valuation allowance is required, what is Never's deferred income tax asset reported on its GAAP financial statements?

Question

Quizplus · Accepted Answer

The deferred tax asset is calculated by multiplying the temporary difference ($50,000) by the tax rate (35%), resulting in $17,500.