Facts:

Burger King is a cash-basis taxpayer but maintains its financial accounting records using full accrual accounting. In the current year, the company sold a parcel of land resulting in a gain of $10,000. However, the receivable will not be collected until next year at which time the gain will be taxed.

Federal income tax law specifies a 'graduated' tax structure as follows:

The first $20,000 of income is taxed at a rate of 10%.

All income above $20,000 is taxed at a rate of 20%.

During the current year, Burger King had taxable income of $38,000. Next year, Burger King anticipates that taxable income (after including the $10,000 gain) will be approximately $40,000.

Question:

What tax rate should Burger King use in measuring (recording) deferred taxes on the $10,000 gain?

Required:

1. Provide a brief written description of the proper tax rate to use in measuring deferred tax expense for the current year.

2. Identify the specific paragraph of the FASB Codification which addresses this issue and submit a printout of this paragraph with your solution.