[mdrosenfeld]

For some reason I can’t seem to get a grip on when there is a deferred tax asset or liability recorded. For example:

For its first year of operations,XXX Corp. recorded a $100,000 expense in its tax return that will not be

recorded in its accounting records until next year. There were no other differences between its taxable

and financial statement income. XXX’s effective tax rate for the current year is 45%, but a 40% rate has

already been passed into law for next year. In its year-end balance sheet, what amount should Cable

report as a deferred tax asset (liability)?

I assumed this would be a DTA, but the correct answer was 40K DTL, I understand using the enacted rate by unsure why its a DTL. If anyone has advice for helping to distinguish between the two I’d greatly appreciate it.

Thanks!

[KasiaS]

In this case, I think the wordiness of the question tricked you. Notice that the question says that the expense will not be recorded until next year, so on this year's B/S you'll have to record a liability (to recognize next year's expense).

FAR 88 (07/15/11)
BEC 83 (08/31/11)
AUD 81 (10/15/11)
REG 83 (11/26/11)

Used NIU Correspondence CPA Review

[pshustler]

Never mind, above post is correct

BEC - 86
AUD - 94
REG - 88
FAR - 89

[mdrosenfeld]

Is it safe to say that if my Taxable income > Book income then I have a liability and vice versa? This seems to be a recurring pattern but I just want to make sure it's 100% correct.

[Taxi Cow Tent]

mdrosenfeld – in your example, which is greater, TI or BI? An expense taken for Tax now (and not taken for Book now) will create a DTL (you are deferring your tax liability until a late date by accelerating the Tax expense).

If your taxable income > book income, that means you took a Book deduction now and you are “owed” a tax deduction later thus creating a DTA. It's a DTA b/c you have a future benefit of this deduction.

FAR - 11/10 - 84
REG - 2/11 - 89
BEC - 5/11 - 80
AUD - 5/11 - 83

[mdrosenfeld]

@Taxi, the answer that becker gave was a DTL, though.

[Taxi Cow Tent]

Right, you said they recorded an expense in their tax return. That means TI < BI on the tax return. You took a tax deduction now that you will not get later when you take it for book. I think you are not reading the question correctly. If you take a deduction on your tax return, that lowers your TI.

FAR - 11/10 - 84
REG - 2/11 - 89
BEC - 5/11 - 80
AUD - 5/11 - 83

[mdrosenfeld]

Oh, right. sorry for the mix up and thanks for the explanation!

[Author]

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