Freeman Inc.reported a profit of $40,000 for 20A.The income tax return excluded a revenue item of $3,000 (reported on the income statement)because under the tax laws the $3,000 would not be reported for tax purposes until 20B.Assuming a 30% income tax rate,this situation would cause a 20A Future tax amount of which of the following?
A)$3,000 (debit)
B)$3,000 (credit)
C)$900 (debit)
D)$900 (credit)

Question

Quizplus · Accepted Answer

The $3,000 revenue is deferred for tax purposes, creating a deferred tax liability. The tax effect is $3,000 * 30% = $900, which is a credit.