Question

Roth Inc. has a deferred tax liability of $68,000 at the beginning of 2015. At the end of 2015, it reports accounts receivable on the books at $90,000 and the tax basis at zero (its only temporary difference). If the enacted tax rate is 34% for all periods, and income taxes payable for the period is $230,000, determine the amount of total income tax expense to report for 2015.

I need an explanation of the answer. I have the answer to the problem, please assist with an explanation of the answer. Thank you!

Answer 1

Solution:

Required deferred tax liability at the end of 2015 = $90,000*34% = $30,600

Existing balance in deferred tax liability = $68,000

Reversal of deferred tax liability in 2015 = $68,000 - $30,600 = $37,400

Income tax expense to be reported for 2015 = Income tax payable - Reversal of deferred tax liability

= $230,000 - $37,400 = $192,600