Lynch Company had a net deferred tax asset of $68,408 at the beginning of the year, representing a net taxable deductible difference of $201,200 (taxed at 34 percent). During the year, Lynch reported pretax book income of $804,800. Included in the computation were favorable temporary differences of $21,200 and unfavorable temporary differences of $50,600.At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Lynch's deferred income tax expense or benefit for the current year would be:

Question

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First, we need to calculate Lynch's taxable income for the current year using the new tax rate of 21 percent:

- Pretax book income: $804,800
- Add favorable temporary differences: $21,200
- Subtract unfavorable temporary differences: $50,600
- Taxable income: $775,400 ($876,400 - $21,200 + $50,600)

Next, we need to calculate Lynch's deferred tax asset at the end of the year using the new tax rate of 21 percent:

- Net taxable deductible difference: $201,200
- Multiply by new tax rate: 0.21
- Deferred tax asset: $42,252 ($201,200 x 0.21)

Finally, we can calculate Lynch's deferred tax expense or benefit for the current year:

- Deferred tax asset at beginning of year: $68,408
- Deferred tax asset at end of year: $42,252
- Change in deferred tax asset: -$26,156 ($42,252 - $68,408)
- Multiply by old tax rate: 0.34
- Deferred tax expense or benefit: -$8,897.04 (-$26,156 x 0.34)

Therefore, the net deferred tax expense for the current year is $19,982 ($8,897.04 - $68,408). The correct answer is D.

Lynch Company Had a Net Deferred Tax Asset of $68,408