A company has a $100,000 temporary difference that will result in taxable amounts in future years (DTL). The enacted tax rate for the current year is 30%. The enacted rate for future years is 25%. <br/><br/>What is the Deferred Tax Liability?

Answer options:

$30,000

$25,000

$5,000

How to approach this question

Measure Deferred Taxes using the ENACTED rate expected to apply when the difference reverses (Future Rate).

Full Answer

B.$25,000✓ Correct

Deferred tax liabilities are measured using the enacted tax rate expected to apply to taxable income in the periods in which the deferred tax liability is expected to be settled ($100,000 * 25% = $25,000).

Common mistakes

Using the current year's rate.

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