Deferred Tax (Appendix)

Erinn Corporation has compiled its 2010 fi nancial statements. Included in the Long-

Term Liabilities category of the balance sheet are the following amounts:

2010 2009 Deferred tax $180 $100 Included in the income statement are the following amounts related to income taxes:

2010 2009 Income before tax $500 $400 Tax expense 200 160 Net income $300 $240 In the notes that accompany the 2010 statement are the following amounts:

2010 Current provision for tax $120 Deferred portion 80 Required 1. Identify and analyze the effect of the transaction in 2010 for income tax expense, deferred tax, and income tax payable.
2. Assume that a stockholder has inquired about the meaning of the numbers recorded and disclosed about deferred tax. Explain why the Deferred Tax liability account exists. Also, what do the terms current provision and deferred portion mean? Why is the deferred amount in the note $80 when the deferred amount on the 2010 balance sheet is $180?AppendixLO1