“The deferred income tax liability is the result of the undistributed earnings of an equity investee, which are expected to be distributed as dividends in future periods. For accounting purposes, investment revenue is 270,000 (900,000×30%). For tax purposes, dividend revenue is 90,000 (300,000×30%), which will be partially offset by the 80% dividends received deductions. Because of this 80% deduction, the difference (270,000-90,000 = 180,000} is partially a permanent difference (80%x180,000=144,000 which will never be subject to taxes) and partially a temporary difference (20%x180,000=36,000) which will be taxable in future years). This future taxable amount of 36,000 will become taxable after 2010, when the expected tax rate is 25%. Therefore, the deferred tax liability is 90,000 (25%x36,000).
DR Income tax expense-deferred 9,000
CR deferred tax liability 9,000
REG (7/14): 82
FAR (11/14): 81
BEC (1/15): 83
AUD (5/15):
.