Enduring Corp. operates in a country where net income from sales of goods are taxed at 40%, net gains from sales of investments are taxed at 20%, and net gains from sales of used equipment are exempt from tax. Installment sale revenues are taxed upon receipt.
For the year ended December 31, 2004, Enduring recorded the following before taxes were considered:
- Net income from the sale of goods was $2,000,000, half was received in 2004 and half will be received in 2005.
- Net gains from the sale of investments were $4,000,000, of which 25% was received in 2004 and the balance will be received in the 3 following years.
- Net gains from the sale of equipment were $1,000,000, of which 50% was received in 2004 and 50% in 2005.
On its financial statements for the year ended December 31, 2004, Enduring should apply an effective tax rate of:
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A) |
22.86% and increase its deferred tax liability by $1,000,000. | |
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B) |
22.86% and increase its deferred tax asset by $1,000,000. | |
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C) |
26.67% and increase its deferred tax liability by $1,000,000. | |
Total taxes eventually due on 2004 activities were (($2,000,000 × 0.40) + ($4,000,000 × 0.20) =) $1,600,000. Permanent differences are adjusted in the effective tax rate, which is ($1,600,000 / $7,000,000 =) 22.86%. Of the $1,600,000 taxes due, (($2,000,000 × 0.50 × 0.40) + ($4,000,000 × 0.25 × 0.20) =) $600,000 were paid in 2004 and $1,000,000 ($1,600,000 ? $600,000) is added to deferred tax liability. | 
发表于 2010-4-20 13:48
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