If income tax expense reported on the income statement is $45,000 for 2016, and the tax return for 2016 (the first year) shows an income tax liability of $42,000, the deferred income tax on the balance sheet at the end of 2016 will be which of the following? Assume a 40% tax rate.
A)A $3,000 liability.
B)A $3,000 asset.
C)A $7,500 liability.
D)A $7,500 asset.

Question

Quizplus · Accepted Answer

The deferred income tax is the difference between the income tax expense and the income tax liability. Here, $45,000 (expense) - $42,000 (liability) = $3,000, which represents a deferred tax liability.

If Income Tax Expense Reported on the Income Statement Is