Cullumber Company reported the following results for the year ended December 31,
ID: 2576703 • Letter: C
Question
Cullumber Company reported the following results for the year ended December 31, 2018, its first year of operations:2018 Income (per books before income taxes) $1461000 Taxable income 2650000
The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2019. What should Cullumber record as a net deferred tax asset or liability for the year ended December 31, 2018, assuming that the enacted tax rates in effect are 35% in 2018 and 30% in 2019?
$356700 deferred tax liability $416150 deferred tax asset $416150 deferred tax liability $356700 deferred tax asset
Explanation / Answer
Note : When taxable income is higher than income as per books due to temporary difference it indicates high tax for now & low taxes in future ie taxes are over paid in current year , thus deferred tax asset (DTA) is created .
Income (per books before income taxes) in 2018 : $1,461,000 .
Taxable income in 2018 : $2,650,000
Deffered tax asset = ($2,650,000 - $1,461,000) * 30 % = $356,700
Answer : $356700 deferred tax asset