On December 31, 2014, XYZ Inc. has an account payable of $2,000 for operating expenses incurred during the year. These expenses are only tax deductible when paid. XYZ normally pays for its operating expenses one month after they are incurred. Assuming a 20% tax rate, these expenses shall result in:

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Quizplus · Accepted Answer

The expenses are deductible for tax purposes when paid, creating a temporary difference. The deferred tax asset is calculated as $2,000 * 20% = $400.