Honest Sam's Corporation has pretax accounting income of $395,000 and taxable income of $375,000. The company's income tax rate is 35%. The entry to record the income tax includes a:

Question

Quizplus · Accepted Answer

The difference between pretax accounting income and taxable income is $20,000 ($395,000 - $375,000). The deferred tax liability is calculated as $20,000 * 35% = $7,000. Thus, a credit to Deferred Tax Liability for $7,000 is needed.

Honest Sam's Corporation Has Pretax Accounting Income of $395,000 and Taxable