MCQ's

a) Income tax expense is equal to

Taxable income multiplied by the applicable tax rate(s).

The difference between current tax expense and deferred tax expense.

Pretax income from continuing operations multiplied by the applicable tax rate(s).

The sum of current tax expense and deferred tax expense.

b) For the year ended December 31, Year 1, Health Company reported a $300,000 warranty expense in its income statement. The expense was based on actual warranty costs of $60,000 in Year 1 and expected warranty costs of $72,000 in Year 2, $74,000 in Year 3, and $94,000 in Year 4. Tax rates in effect are 20% for Year 1 and Year 2, and 15% for Year 3 and beyond. At December 31, Year 1, this difference will yield a (please show detailed working for this one)

$39,600 Deferred Tax Liability

$48,000 Deferred Tax Liability

$39,600 Deferred Tax Asset

$51,600 Deferred Tax Asset

$60,000 Deferred Tax Asset

$48,000 Deferred Tax Asset

$51,600 Deferred Tax Liability

$60,000 Deferred Tax Liability