Section 4: Deferred Taxes, Contingent Liabilities and Other Comprehensive Income

Question 1:

The Holiday Company began operations in 2019. Given a temporay difference in 2019, Holiday reported taxable income to the IRS of $140,000 and pretax income to its shareholders of $120,000. Assume an effective tax rate of 30%.

a. Calculate the deferred tax adjustment for 2019.

b. Is the companys deferred taxes an asset or a liability?

c. Fill in the following table for the information that would appear in the deferred tax footnote for 2019.

	2019
Current Payable
Deferred Taxes
Total

d. If the effective tax rate decreased to 21%, how much would the deferred tax asset or liability change?

e. Indicate if the change in the deferred tax asset or liability would lead to a gain or a loss on the income statement.