Never, Inc., earns book net income before tax of $500,000. In computing its book income, Never deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes. Never records no other temporary or permanent book-tax differences. Assuming that the U. S. tax rate is 21% and no valuation allowance is required, what is Never's deferred income tax asset reported on its GAAP financial statements? a.$105,000 b.$94,500 c.$10,500 d.$115,500

Question

Alexzander Haney

Business

29 January, 06:57

Never, Inc., earns book net income before tax of $500,000. In computing its book income, Never deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes. Never records no other temporary or permanent book-tax differences. Assuming that the U. S. tax rate is 21% and no valuation allowance is required, what is Never's deferred income tax asset reported on its GAAP financial statements? a.$105,000 b.$94,500 c.$10,500 d.$115,500

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Noe Golden · Answer 1

c.$10,500

Explanation:

The computation of the deferred income tax asset is shown below:

= Warranty expense for book purposes * U. S tax rate

= $50,000 * 21%

= $10,500

For computing the deferred income tax asset reported, we simply multiply the warranty expense with the U. S tax rate.

Hence, we ignored the net income before tax as it is an irrelevant part which is given in the question