Tommy Corp.reported a net deferred tax asset balance of $185,000 resulting from an estimated warranty expense accrual for book purposes.The total book-tax difference related to the bases of the estimated warranty liability is $500,000.The enacted statutory tax rate related to this balance changed from 37% to 32%,effective immediately.By what amount will the deferred asset balance change?

Question

Quizplus · Accepted Answer

The change in the enacted statutory tax rate from 37% to 32% will result in a decrease in the value of deferred tax assets.

To calculate the change, multiply the total book-tax difference related to the estimated warranty liability by the change in tax rate:

$500,000 x (0.37 - 0.32) = $25,000 decrease

Therefore, the deferred asset balance will decrease by $25,000, as given in option B.