2 te Deferred Tax Asset ns Illustration: Hunt Company has revenues of $900,000 f

Question

2 te Deferred Tax Asset ns Illustration: Hunt Company has revenues of $900,000 for both 2017 and 2018. It also has operating expenses of $400,000 for each of these years. In addition, Hunt accrues a loss and related liability of $50,000 for financial reporting purposes because of pending litigation. Hunt cannot deduct this amount for tax purposes until it pays the liability, expected in 2018. As a result, a deductible amount will occur in 2018 when Hunt settles the liability, causing taxable income to be lower than pretax financial information. llustration 19-18 shows the GAAP and tax reporting over the two years As ca re

Explanation / Answer

Answer

Under GAAP Reporting:

Under Tax Reporting:

Particulars 2017 2018 Revenue $900000 $900000 Expenses $400000 $400000 Litigation Loss $50000 $0 Pretax income $450000 $500000 Tax rate 40% 40% Income tax exp. $180000 $200000

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