[goga79]

Venus Corp.’s worksheet for calculating current and deferred income taxes for 1992 follows:

1992 1993 1994

Pretax income $1,400

Temporary differences:

Depreciation (800) (1,200) $2,000

Warranty costs 400 (100) (300)

Taxable income $1,000 (1,300) 1,700

Loss carryback (1,000) 1,000

Loss carryforward 300 (300)

$ 0 $ 0 $1,400

Enacted rate 30% 30% 25%

Venus had no prior deferred tax balances. In its 1992 income statement, what amount should Venus report as:

Deferred income tax expense?

The answer is $95.

Can someone explain how this reversal works? I am confused 🙁

FAR 56