Question

Swordfish Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of $500,000. Finally, Swordfish subtracted a dividends received deduction of $15,000 in computing its current-year taxable income. Swordfish's deferred income tax expense or benefit would be:

$23,100 net deferred tax benefit.

$26,250 net deferred tax benefit.

$26,250 net deferred tax expense.

$23,100 net deferred tax expense.

(Tax rate was not Provided but I used 21%)

Answer 1

Swordfish's deferred income tax expense or benefit would be:

- $26250 net deffered tax benefit

- Deffered tax benefit

= (Increase in net reserve for warranties during current year + Exceeded tax depreciation over book depreciation in current year)× tax rate

= ($25000+$100000)×21%

= $125000 × 21%

= $26250.

​​​​_______×_______

ALL THE BEST

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