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.

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.