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The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars):
The applicable tax rate is 40%.There are no other temporary or permanent differences.
-Franklin's balance sheet at the end of its first year would report:

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Use the following to answer questions 
The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars):
  The applicable tax rate is 40%.There are no other temporary or permanent differences.
-Franklin's balance sheet at the end of its first year would report:

Quizplus · Accepted Answer

Since the tax rate is 40%, and there are no other temporary or permanent differences, the deferred tax liability would be calculated as follows: 
Taxable income = $50 - $12 - $25 - $6 = $7 million 
Tax expense = $7 million x 40% = $2.8 million 
However, the tax payable is only $2.4 million ($6 million x 40%), so there is a deferred tax liability of $0.4 million ($2.8 million - $2.4 million). This would be reported as a noncurrent liability on the balance sheet. Therefore, the best choice is A.

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