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Typical Corp. reported a deferred tax liability of $6,000,000 for the year ended December 31, 2010, when the tax rate was 40%.
Typical Corp. reported a deferred tax liability of $6,000,000 for the year ended December 31, 2010, when the tax rate was 40%. The deferred tax liability was related to a temporary difference of $15,000,000 caused by an installment sale in 2010. The temporary difference is expected to reverse in 2012 when the income deferred from taxation will become tax-able. There are no other temporary differences. Assume a new tax law passed in 2011 and the tax rate, which will remain at 40% through December 31, 2011, will become 48% for tax years beginning after December 31, 2011. Pretax accounting income and taxable income for the year 2011 is $30,000,000.Prepare a compound journal entry to record Typical's income tax expense for the year 2011. Show well-labeled computations.
