Questions

In Year 1, a company has revenues of $600,000 and expenses of $400,000. Of the

expenses, $70,000 represents a warranty on a company product. However, the company

only paid $30,000 as a result of this warranty. The remainder is expected to be paid in a

future year in which company officials believe there is a 60% chance that the company

will have taxable income to be reduced by this warranty cost. The relevant tax rate is

30% for Year 1 and 32% for periods after that. What is the total amount of income tax expense to be recognized in Year 1?

The Foyer Company had an enacted income tax rate of 25%. The company ended Year 1

with a deferred income tax liability of $30,000, a deferred income tax asset of $40,000,

and a valuation allowance of $9,000. The enacted tax rate at the beginning of Year 2 was

raised to 28%. The company ended Year 2 with a deferred income tax liability of

$60,000, a deferred income tax asset of $30,000, and a valuation allowance of $14,000.

On the company's Year 2 income statement, what is the amount of income tax expense

(deferred) that is reported?