Weaver Company had a net deferred tax liability of $34,476 at the beginning of the year, representing a net taxable temporary difference of $101,400 (taxed at 34 percent). During the year, Weaver reported pretax book income of $405,600. Included in the computation were unfavorable temporary differences of $51,400 and favorable temporary differences of $22,800. 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

To calculate the deferred tax expense or benefit, we need to first compute the new net taxable temporary difference using the new tax rate of 21%. 
New net taxable temporary difference = $101,400 x (0.34-0.21) = $2,754 
This means that the net deferred tax liability at the end of the year is $34,476 - $2,754 = $31,722. 
To calculate the deferred tax expense or benefit, we need to compare the beginning and end balances of the net deferred tax liability. 
Beginning balance = $34,476, End balance = $31,722 
Therefore, the net deferred tax benefit for the year is $2,754. 
Additionally, we need to consider the temporary differences reported in the income statement (favorable and unfavorable). 
Unfavorable temporary differences = $51,400 x (0.34-0.21) = $3,762. 
Favorable temporary differences = $22,800 x (0.34-0.21) = $1,758. 
The net amount of these temporary differences is $1,004, which increases the deferred tax benefit to $2,754 + $1,004 = $3,758. 
However, we also need to account for the change in tax rate from 34% to 21%. This reduces the deferred tax liability (and therefore increases the deferred tax benefit) by $34,476 x (0.34-0.21) = $4,410. 
Therefore, the overall net deferred tax benefit for the year is $3,758 + $4,410 = $8,168.

Weaver Company Had a Net Deferred Tax Liability of $34,476