PRINTER VERSION BAG Multiple Choice Question 7 As the beginning of 2018: Pharoah

Question

PRINTER VERSION BAG Multiple Choice Question 7 As the beginning of 2018: Pharoah, Ingc, had a deferred tax asset of $22000 and a deferred tax katbulity of $32000. Pre tax accome for 2 following items are incladed in Pharosh's pre-tax income: Interest income from municipal bonds Accrued warranty costs, estimated to be paid in 2019 Operating loss carryforward Installment sales profit, will be taxed in 2019 Prepaid rent expense, will be used in 2019 $124000 $264000 $194000 $134000 $62000 Which of the following is required to adjust Pharoah, Inc.'s deferred tax asset to its correct O A debit of $50600 O A debit of $57200 O A credit of $79200 O A credit of $50600

Explanation / Answer

Answer is option (A debit of $57200)

Explanation;

Accrued warranty costs, estimated to be paid in 2019 = $264000

Tax rate = 30%

So tax will be ($264000 * .30) = $79200

As per question beginning balance of deferred tax asset is $22000

Thus ($79200 – $22000) = $57200 is additional amount that will be debited to deferred tax asset.

So answer is A debit of $57200 is required to adjust Pharoah, Inc.’s deferred tax asset to its correct balance at December 31, 2018.

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