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At the beginning of 2012, Baker, Inc. had a deferred tax asset of $8,000 and a deferred tax liability of $12,000. Pre-tax accounting income for 2012 was $600,000 and the enacted tax rate is 40%. The following are the only differences for tax and financial accounting purposes at the end of the year:

Interest income from municipal bonds $48,000
Accrued warranty costs, estmated to be paid in 2013 $104,000
Operating loss carryforward $76,000
Installment sales revenue, will be collected in 2013 $52,000
Prepaid rent expense, will be used in 2013 $24,000

Which of the following is required to adjust Baker, Inc.'s deferred tax liability to its correct balance at December 31, 2012?

a) $30,400 debit to Deferred Tax Liability

b) $30,400 credit to Deferred Tax Liability

c) $18,400 debit to Deferred Tax Liability

d) $18,400 credit to Deferred Tax Liability

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M946162

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