Cullumber Company reported the following results for the year ended December 31,

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

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