Smith Industries reported a deferred tax liability of $8 million for the year ended December 31, 2021, related to a temporary difference of $32 million. The tax rate was 25 %. The temporary difference is expected to reverse in 2023, at which time the deferred tax liability will become payable. There are no other temporary differences in 2021-2023. Assume a new tax law is enacted in 2022 that causes the tax rate to change from 25% to 15% beginning in 2023. (The rate remains 25% for 2022 taxes.) Taxable income in 2022 is $42 million. Income tax expense in 2022 for Smith would be: a) $13.7 million. b)$10.5 million. c) $7.3 million. d) $2.5 million.
Smith Industries reported a deferred tax liability of $8 million for the year ended December 31, 2021, related to a temporary difference of $32 million. The tax rate was 25 %. The temporary difference is expected to reverse in 2023, at which time the deferred tax liability will become payable. There are no other temporary differences in 2021-2023. Assume a new tax law is enacted in 2022 that causes the tax rate to change from 25% to 15% beginning in 2023. (The rate remains 25% for 2022 taxes.) Taxable income in 2022 is $42 million. Income tax expense in 2022 for Smith would be: a) $13.7 million. b)$10.5 million. c) $7.3 million. d) $2.5 million.
Chapter14: Taxes On The Financial Statements
Section: Chapter Questions
Problem 20CE
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Transcribed Image Text:Smith Industries reported a deferred tax liability of $8 million for the year ended December
31, 2021, related to a temporary difference of $32 million. The tax rate was 25 %. The temporary
difference is expected to reverse in 2023, at which time the deferred tax liability will become
payable. There are no other temporary differences in 2021-2023. Assume a new tax law is
enacted in 2022 that causes the tax rate to change from 25% to 15% beginning in 2023. (The rate
remains 25% for 2022 taxes.) Taxable income in 2022 is $42 million. Income tax expense in 2022
for Smith would be: a) $13.7 million. b)$10.5 million. c) $7.3 million. d) $2.5 million.
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