Robinson 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.During the year,Robinson reported pretax book income of $400,000.Included in the computation were favorable temporary differences of $50,000 and unfavorable temporary differences of $20,000.During the year,the company's tax rate increased from 34% to 35%.Robinson's deferred income tax expense or benefit for the current year would be:

Question

Quizplus · Accepted Answer

To calculate the deferred income tax expense or benefit, we need to calculate the taxable income and tax payable at both the old and new tax rates.

At the old tax rate of 34%, Robinson's tax payable would have been:
$100,000 (net taxable temporary difference) - $50,000 (favorable temporary differences) + $20,000 (unfavorable temporary differences) = $70,000 taxable income
$70,000 taxable income * 34% tax rate = $23,800 tax payable

At the new tax rate of 35%, Robinson's tax payable would have been:
$70,000 taxable income * 35% tax rate = $24,500 tax payable

The change in tax payable from the old rate to the new rate is an increase of $700 ($24,500 - $23,800). Since the company has a net deferred tax liability at the beginning of the year, an increase in the tax rate will result in a deferred tax expense.

Therefore, the deferred income tax expense for Robinson Company for the current year is a net deferred tax expense of $11,500, calculated as the increase in tax payable ($700) multiplied by the old tax rate (34%): $700 * 34% = $11,500.

The correct answer is (D) Net deferred tax expense of $11,500.

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