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Paige Company deducts insurance expense of $105,000 for tax purposes in 2018....

ID: 2527618 • Letter: P

Question

Paige Company deducts insurance expense of $105,000 for tax purposes in 2018.... What is the amount of the deferred tax liability at the end of 2018?

Paige Company deducts insurance expense of $105,000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $35,000 of insurance expense will be reported for accounting purposes in each of these years. Paige Company has a tax rate of 40% and income taxes payable of $90,000 at the end of 2018 There were no deferred taxes at the beginning of 2018. 8. What is the amount of the deferred tax liability at the end of 2018? a. $42,000 b. $36,000 c. $15,000 d. $0

Explanation / Answer

Solution 8:

Taxable Temporary difference occured in 2018 = $105,000

Income tax rate = 40%

Amount of Deferred tax liability at the end of 2018 = $105,000 * 40% = $42,000

hence option a is correct.