Question
Valerie Corporation showed a deferred tax liability of $64,000 at January 1, 2020. This liability is related to a future taxable amount of $160,000 which
Valerie Corporation showed a deferred tax liability of $64,000 at January 1, 2020. This liability is related to a future taxable amount of $160,000 which is expected to reverse in 2021. When the deferred tax liability was recorded in 2019, the tax rate was 40%. Late in 2020, the government announced that the tax rate for 2021 would be reduced to 35%.
a) What amount should be reported as the deferred tax liability at the end of 2020?
b) If Valerie reports under IFRS, how will the deferred tax liability be classified on the Statement of Financial Position at December 31, 2020?
c) Prepare the journal entry (if any) that is necessary to adjust the deferred tax liability at the end of 2020.
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