Watson Corporation prepared the following reconciliation for its first year of o
ID: 2527622 • Letter: W
Question
Watson Corporation prepared the following reconciliation for its first year of operations...
Watson Corporation prepared the following reconciliation for its first year of operations: $1,400,000 Tax exempt interest (permanent difference) (100,000) (300,000) $1,000,000 Pretax financial income for 2017 Originating temporary difference Taxable income The temporary difference will reverse evenly over the next two years at an enacted tax rate of 21%. The enacted tax rate for 2017 is 35%. What amount should be reported in its 2017 income statement as the current portion of its provision for income taxes? a. $350,000 b. $490,000 c. $455,000 d. $385,000 What amount should be shown on the balance sheet for Watson's deferred taxes? a. $63,000 deferred tax liability - current b. $63,000 deferred tax liability- long-ternm C. $31,500 deferred tax asset-current d. $31,500 deferred tax liability long termExplanation / Answer
Current portion of provison for income taxes = Taxable income * Current tax rate
= 1,000,000 * 35%
= 350,000
The answer is - A.
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Negative temporary difference * Future tax rate = Deferred tax liablity
Deferred tax liability = 300,000 * 21%
= 63,000
Deferred tax assets and Deferred tax liabilities are always non current as per GAAP.
The answer is - B.
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