Robinson Company had a net deferred tax liability of $34,000 at the beginning of the year, representing a net taxable temporary difference of $100,000 (taxed at 34 percent). During the year, Robinson reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000. During the year, Congress reduced the corporate tax rate to 21 percent. Robinson's deferred income tax expense or benefit for the current year would be:

Question

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First, we need to calculate the total amount of temporary differences by adding the favorable and unfavorable amounts, which gives us $30,000 ($50,000 - $20,000).

Next, we need to calculate the amount of taxable income by subtracting the total temporary differences from the pretax book income, which gives us $370,000 ($400,000 - $30,000).

Using the old tax rate of 34%, the tax liability on this income would be $125,800 ($370,000 x 0.34).

Next, we need to calculate the new tax liability using the new corporate tax rate of 21%. This gives us a new tax liability of $77,700 ($370,000 x 0.21).

The difference between the old and new tax liability is $48,100 ($125,800 - $77,700), which represents the deferred tax liability that Robinson will no longer have to pay due to the change in tax rate.

Finally, we need to calculate the net deferred tax benefit, which is the amount of deferred tax liability that will be removed from the balance sheet. This is done by multiplying the old deferred tax liability of $34,000 by the difference between the old and new tax rates (0.13).

Net deferred tax benefit = $34,000 x 0.13 = $4,420

Adding this to the $1,280 ($48,100 x 0.034, which is the portion that reduces the deferred tax liability), we get a net deferred tax benefit of $6,700. Therefore, the correct answer is C.

Robinson Company Had a Net Deferred Tax Liability of $34,000