Weaver 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, Weaver reported pretax book income of $400,000. Included in the computation were unfavorable temporary differences of $50,000 and favorable temporary differences of $20,000. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year would be:

Question

Quizplus · Accepted Answer

The correct answer is a net deferred tax benefit of $19,300. This is calculated by first adjusting the beginning net deferred tax liability to the new tax rate of 21% ($100,000 * 21% = $21,000), then calculating the effect of the temporary differences during the year ($50,000 - $20,000 = $30,000 net unfavorable difference * 21% = $6,300), and finally, subtracting the adjusted beginning liability from the end liability ($21,000 - $27,300 = -$6,300). The change in the deferred tax liability is a benefit of $19,300 ($34,000 - $21,000 + $6,300).

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