A firm reported the following in its income statement for the current year: depreciation expense,$4,000; pollution violation fine,$12,000; pre-tax accounting income,$10,000.The tax rate is 40% for the current year,and no changes to this rate are foreseen in the near term.For tax purposes,the CCA deduction was $9,000.What amount of deferred income tax (benefit)expense will be recognized for this year? Assume a beginning Deferred Tax asset balance of $4,000.

Question

Quizplus · Accepted Answer

Step 1: Calculate the taxable income
For tax purposes, CCA deduction is $9,000, so the taxable income is:
$10,000 - $4,000 - $9,000 + $12,000 = $9,000

Step 2: Calculate the income tax expense
Income tax expense = taxable income x tax rate
Income tax expense = $9,000 x 40% = $3,600

Step 3: Calculate the deferred tax balance
Deferred tax balance = Deferred Tax Asset balance + Deferred Tax Expense/Benefit
Deferred Tax Asset balance = $4,000
Deferred Tax Expense/Benefit = Income tax expense - Income tax payable
Income tax payable = taxable income x tax rate
Income tax payable = $10,000 x 40% = $4,000
Deferred Tax Expense/Benefit = $3,600 - $4,000 = ($400)

Step 4: Calculate the deferred tax expense/benefit for the current year
Deferred Tax Expense/Benefit for the current year = Deferred Tax Expense/Benefit - Change in Deferred Tax Asset
Change in Deferred Tax Asset = $0 (no information is given)
Deferred Tax Expense/Benefit for the current year = ($400)

Since the deferred tax expense/benefit for the current year is negative, it means there is a deferred tax benefit. Therefore, the answer is D, a $6,000 deferred tax expense.

A Firm Reported the Following in Its Income Statement for the Current