Deferred Tax (Appendix)

Thad 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 $200 Included in the income statement are the following amounts related to income taxes:

2010 2009 Income before tax $500 $400 Tax expense 100 150 Net income $400 $250 Required 1. Determine the effect on the accounting equation 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. Explain why the Deferred Tax liability account exists.

AppendixLO1