Question:XYZ Company reports income tax expense of $224,000 on its Income Statement for the year ending December 31 Year 4. Included in Year 4's income is interest revenue of $40,000 from some tax-exempt municipal bonds that the company owns. In computing its income tax expense of $224,000, the company also had a temporary difference of $80,000, which will result in a future tax deduction. It is assumed that a tax rate of 30 percent will apply to the future tax deduction. The tax rate for Year 4 (the company's first year of operations) is 40 percent. Given the above information, how would XYZ Company report the tax effect of the permanent difference on its Balance Sheet for the current year?
A As a deferred tax asset of $16,000
B As a deferred tax liability of $16,000
C Nothing would be reported on the Balance Sheet because a permanent difference has no effect on deferred taxes.
D None of these
+ AnswerC
+ Explanation
+ Report
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