Q 4.1

In the 2020 fiscal year, Company A recognized $10 of bad-debt expense (as well as the same amount of bad-debt allowance) for its Accounts receivable. There was no bad-debt written-off in the same year. The corporate tax rate is 30%.

Required: Assuming all else equal, discuss the effect of the recognition of the $10 bad-debt expense on the following two tax-related accounts:

• Current tax liability
• Deferred tax asset (or deferred tax liability)

You need to relate your discussions to the current tax worksheet as well as deferred tax worksheet.