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Amanda Company's Income Tax and Deferred Tax

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Amanda Company began manufacturing operations on January 2, Year 4. In Year 4, Amanda earned a pretax book income of $300,000 and had taxable income of $400,000. The difference related to accrued product warranty costs which are expected to be paid out as follows: Year 5: $60,000; Year 6: $30,000; and Year 7: $10,000. The enacted tax rates are 30% for Years 4 and 5 and 40% for Years 6 and 7.

1. The deferred tax to be reported on Amanda's December 31, Year 4, balance sheet is a:
a. $30,000 deferred tax asset
b. $30,000 deferred tax liability
c. $34,000 deferred tax asset
d. $34,000 deferred tax liability

2. If Amanda paid no estimated taxes, the income tax payable to be reported at the end of Year 4 is _________
a. $120,000
b. $125,000
c. $130,000
d. $134,000

3. Income tax expense to be reported by Amanda on the Year 4 income statement is _______
a. $86,000
b. $90,000
c. $130,000
d. $134,000

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The solution explains various multiple choice questions relating to income taxes with calculations and answers.

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1. Since the taxable income is higher there will be a deffered tax asset on account of warranty costs. The tax rate is 30% for year 5 and 40% for ...

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