I think they used $350,000 because capital accounts are based on the amount contributed, which in this case seems to be cash…not the FV of the asset they purchased.
Can anyone help me out with this? From the cpareview for free questions.
A company has an enacted tax rate of 30 percent. During Year One, the company reported a $120,000 gain for financial reporting purposes that would not be taxed until Year Two. During Year Two, the company had another gain, this one for $160,000, that would not be taxed until Year Three. On its Year Two income statement, what amount should be reported as the company's income tax expense-deferred?
Answer: 12,000
At the end of Year One, the company reports a deferred income tax liability of $36,000 ($120,000 deferral times 30 percent enacted tax rate). During Year Two, the $120,000 is recognized but another gain is deferred. At the end of Year Two, the company reports a deferred income tax liability of $48,000 ($160,000 deferral times 30 percent enacted tax rate). The income tax expense-deferred is always the amount to adjust the deferred liability from the beginning balance ($36,000) to the ending balance ($48,000) or $12,000.
I guess I just don't get why the expense- deferred is only 12,000 when it's really going to be 48,000? I get that it's adjusting it to the correct balance but it's just confusing to me
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