Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year, representing a net taxable temporary difference of $200,000 (taxed at 34%). During the year, Lynch reported pretax book income of $800,000. Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000. At the beginning of the year, Congress reduced the corporate tax rate to 21%. Lynch's deferred income tax expense or benefit for the current year would be:

Question

Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year, representing a net taxable temporary difference of $200,000 (taxed at 34%). During the year, Lynch reported pretax book income of $800,000. Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000. At the beginning of the year, Congress reduced the corporate tax rate to 21%. Lynch's deferred income tax expense or benefit for the current year would be:

Quizplus · Accepted Answer

The net deferred tax benefit for the current year is $6,300 [($20,000 - $50,000) × 21%]. The beginning balance in the deferred tax asset account must be adjusted downward to reflect the change in the tax rate by 13 percentage points ($200,000 × 13% = $26,000 reduction in the deferred tax asset). The net adjustment is a net deferred tax benefit of $32,300.

Lynch Company Had a Net Deferred Tax Asset of $68,000