Question 3

At the end of the year, a deductible temporary difference of $40 million has been recognised due to the difference between the carrying amount of a liability account for estimated expenses and its tax base. Taxable income is $50 million. No temporary differences existed at the beginning of the year, and the tax rate is 35%.

Required:

a) Prepare the journal entry(s) to record income taxes during the period.

b) How much will income tax expense be shown in the income statement?

c) What will be the balance sheet disclosure during the period regarding taxes?