Question

Alvis Corporation reports pretax accounting income of $420,000, but due to a single temporary difference, taxable income is only $265,000. At the beginning of the year, no temporary differences existed.

Required:
1. Assuming a tax rate of 35%, what will be Alvis’s net income?
2. What will Alvis report in the balance sheet pertaining to income taxes?

Answer 1

	Calculation Of Deferred Tax Asset
	Temporary Difference = $420000-265000
		=$155000
	Therefore Deferred Tax Liability
		=$155000*35%
		=$54250
	Calculation Of Current Tax i.e. Tax As Per Income Tax Law
	=$265000 *35%
	=92750
	Calculation Of Net Income
				$
	Accounting Income			420000
	Less:
	Current Tax			92750
	Deferred Tax Liability			54250
	Net Income			273000
2)	Alvis will report in balance sheet (liability Side)
	Deferred Income Tax			54250