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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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    Solution Preview

    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 ...

    Solution Summary

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