At the end of the current year, a company overstated prepaid insurance by $62,000 and understated supplies expense by $108,000. Its effective tax rate is 20%. As a result of this error, net income is:

At the end of the current year, a company overstated prepaid insurance by $62,000 and understated supplies expense by $108,000. Its effective tax rate is 20%. As a result of this error, net income is:

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter14: Taxes On The Financial Statements

Section: Chapter Questions

Problem 51P

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

At the end of the current year, a company overstáted prepaid insurance by $62,000 and understated supplies
expense by $108,000. Its effective tax rate is 20%. As a result of this error, net income is:
Multiple Choice
Understated by $36,800.
Overstated by $36,800.
Overstated by $136,000.
Understated bý $136,000.

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