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 21% and no valuation allowance is required, what is Never's deferred income tax asset reported on its GAAP financial statements?
A) $115,500
B) $105,000
C) $94,500
D) $10,500

Question

Quizplus · Accepted Answer

The deferred income tax asset is calculated as the difference in warranty expense for book and tax purposes ($50,000) multiplied by the tax rate (21%), which equals $10,500.