Nalad Corp. provided the following data related to accounting and taxable income:

There are no existing temporary differences other than those reflected in these data. There are no permanent differences.

Required:
1. How much tax expense would be reported in each year if the taxes payable method was used? What is potentially misleading with this presentation of tax expense?
2. How much tax expense and deferred income tax would be reported using comprehensive tax allocation (liability method)? Why is the two-year total tax expense the same in requirements 1 and 2?

Transcribed Image Text:

Pre-tax accounting income (financial statements) Taxable income (tax return) Income tax rate 20X8 $400,000 240,000 38% 20X9 $ 440,000 600,000 38%