Giada Foods reported $940 million in income before income taxes for 2009, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to non-temporary differences. The income tax rate for 2009 was 35%, but the enacted rate for years after 2009 is 40%. The balance in the deferred tax liability in the December 31, 2009, balance sheet is:

Question

Quizplus · Accepted Answer

The deferred tax liability is calculated based on the temporary difference of $100 million due to tax depreciation exceeding financial reporting depreciation, multiplied by the future tax rate of 40%, resulting in a deferred tax liability of $40 million. Non-temporary differences do not affect deferred taxes.

Giada Foods Reported $940 Million in Income Before Income Taxes