FASB Codification Case #4

Income Tax

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.

Grade Value

This case counts as a bonus question (maximum 2 percentage points) for examination #2.

You must work independently on this case (this is not a group project).