Which of the following statements regarding tax-effect accounting is incorrect?
A) The tax-effect method of accounting for income tax determines that temporary differences may arise, resulting in the recognition of either a liability or an asset.
B) The tax-effect method for calculating income tax expense is where the taxable income is multiplied by the tax rate.
C) A tax loss can only be carried forward as a future tax benefit if it is probable that the entity will earn taxable income in the future.
D) A deferred tax liability will occur where taxable income is less than accounting profit in the current period.

Question

Quizplus · Accepted Answer

The tax-effect method for calculating income tax expense is not simply multiplying taxable income by the tax rate. This method takes into account permanent and temporary differences between accounting profit and taxable income to calculate the actual income tax expense. Therefore, statement B is incorrect.

Which of the Following Statements Regarding Tax-Effect Accounting Is Incorrect