KER commenced operations in 2013.The company had recorded an accrual for warranty expenses in its books during the year ended December 31,2013,its first year of operations,amounting to $100,000.During the year 2014,customers required service from goods sold in 2014 amounting to $60,000.There were no similar expenditures made during 2013.KER recorded an amount for possible warranty costs for goods sold during the year in the amount of $95,000.Accounting income amounted to $80,000 and the tax rate is 40%.Assuming that KER has no other differences between accounting and tax what are the current and deferred income tax amounts that will appear on the 2014 statement of financial position?

Question

Quizplus · Accepted Answer

The correct answer is A.The accrual for warranty expenses in 2013 is a timing difference that will reverse in 2014. The amount of the reversal is $60,000. The provision for warranty costs in 2014 is a timing difference that will create a future deductible expense. The amount of the difference is $95,000. The total timing difference is $155,000. The current income tax amount is $46,000 (155,000 x 40% x 60%). The deferred income tax amount is $54,000 (155,000 x 40% x 40%).

KER Commenced Operations in 2013