Answer:
hypothetical entry at 21% corporate income tax
income tax expense 211 , 134
deferred tax (benefit) 29,442
income tax payable 240,576
Explanation:
pre tax book income 1,038,000
permanent difference:
dividends deductions (32,600)
book taxable income 1,005,400
temporary difference
higher tax depreciation 109,500
warranty reserve 30,700
(which cannot be deducted until occur)
taxable income 1,145,600
Assuming the current corporation tax rate for 2019 of 21%
1,005,400 x 21% = 211 , 134 tax expense
1,145,600 x 21% = 240,576 tax payable
deferred tax benefit: 29,442 benefit
This is a benefit because the depreciaiton and warranty expense will match eventually.
The depreciation at the end of the equipment life
and the warranty when occur.
In those period, the accounting will recognize no expense for warrant, so his book income will be higher but pay for a lowe income as the warrant cost will be deducted.
Same goes for depreciation, later it will not have depreciation expense, but for the fiscal year it will.
