The 2013 annual report of Dow Chemical disclosed the following: Deferred tax assets decreased by $1,503 million and deferred tax liabilities increased by $38 million. How do these balance-sheet changes affect tax expense on the income statement for the year? A) Increase tax expense by $1,331 millionB) Decrease tax expense by $1,331 millionC) Increase tax expense by $1,541 millionD) Decrease tax expense by $1,541 millionE) None of the above

Question

Gabrielle Sanchez

Business

3 March, 01:33

The 2013 annual report of Dow Chemical disclosed the following: Deferred tax assets decreased by $1,503 million and deferred tax liabilities increased by $38 million. How do these balance-sheet changes affect tax expense on the income statement for the year? A) Increase tax expense by $1,331 millionB) Decrease tax expense by $1,331 millionC) Increase tax expense by $1,541 millionD) Decrease tax expense by $1,541 millionE) None of the above

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Answers (1)

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Yadiel Hawkins · Answer 1

The correct option is (c) Increase tax expense by $1,541 million

Explanation:

Step 1. Given information.

Decrease in Deferred Tax Asset 1503 Million Increase in Deferred Tax Liabilities 38 Million

Step 2. Formulas needed to solve the exercise.

Increase in Tax Expense = Decrease in Deferred Tax Asset + Increase in Deferred Tax Liabilities

Step 3. Calculation.

Increase in Tax Expense = 1503+38 = 1541 Million

Step 4. Solution.

The correct option is (c) Increase tax expense by $1,541 million