Question

The following facts relate to Vaughn Corporation. 1. 2. 4. 5. 6. 7. Deferred tax liability, January 1, 2020, $34,500. Deferred tax asset, January 1, 2020, $11,500. Taxable income for 2020, $120,750. Cumulative temporary difference at December 31, 2020, giving rise to future taxable amounts, $264,500. Cumulative temporary difference at December 31, 2020, giving rise to future deductible amounts, $109,250. Tax rate for all years, 20%. No permanent differences exist. The company is expected to operate profitably in the future. (a) Compute the amount of pretax financial income for 2020. Pretax financial income $

Answer 1

Solution a:

Computation of Required balance and recognition of Deferred tax liability and Deferred tax Assets -Vaughn Corporation
Particulars	Amount
Cumulative temporary differences giving rise to future taxable amount	$264,500.00
Required ending balance in deferred tax liability ($264,500*20%)	$52,900.00
Existing balance of deferred tax liability	$34,500.00
Deferred tax liability to be recorded for current year	$18,400.00
Temporary differences for current year giving rise to future taxable amount ($18,400/20%)	$92,000.00
Cumulative temporary differences giving rise to future deductible amount	$109,250.00
Required ending balance in deferred tax Assets (109,250*20%)	$21,850.00
Existing balance of deferred tax Assets	$11,500.00
Deferred tax assets to be recorded for current year	$10,350.00
Temporary differences for current year giving rise to future deductible amount ($10,350/20%)	$51,750.00

Computation of pretax financial income
Particulars	Amount
Taxable income	$120,750.00
Add: Temporary differences for current year giving rise to future taxable amount	$92,000.00
Less: Temporary differences for current year giving rise to future deductible amount	$51,750.00
Pre tax financial income	$161,000.00