Deferred Income Taxes

[Snaggletooth]

Cee Corporation, a C-corp, accrued bonuses as of the end of its fiscal year, of $50,000. In spite of warnings from myself and their in-house accountant, by the time of the tax return, they had paid only $27,000 of these accrued bonuses.

GAAP requires recognition of tax amounts thus deferred, as income tax expense, and a liability shown for this amount. Assume (for purposes of discussion) that the tax rate is 30%.

Should the deferred income tax liability show:

A) $15,000 (30% of the amount accrued)
B) $ 8,100 (30% of the tax benefit received)

[BHoffman]

Cee Corporation, a C-corp, accrued bonuses as of the end of its fiscal year, of $50,000. In spite of warnings from myself and their in-house accountant, by the time of the tax return, they had paid only $27,000 of these accrued bonuses.

GAAP requires recognition of tax amounts thus deferred, as income tax expense, and a liability shown for this amount. Assume (for purposes of discussion) that the tax rate is 30%.

Should the deferred income tax liability show:

A) $15,000 (30% of the amount accrued)
B) $ 8,100 (30% of the tax benefit received)

Hi Snags - I'm curious: Does Cee report its financial statements on a fiscal year end, and its tax return on a calendar year end? Does Cee report its taxes on the cash basis or on the accrual basis?

Sometimes you can just prepare a quickie tax return on the accrual (GAAP) basis and print page one for reference. Then, prepare it on the cash (TAX) basis. The difference in the tax is your deferral. You could keep page one accrual vs. page one cash basis in your working papers as backup. This only works if you have a pretty simple scenario like the one you are describing.

[Maribeth]

Cee Corporation, a C-corp, accrued bonuses as of the end of its fiscal year, of $50,000. In spite of warnings from myself and their in-house accountant, by the time of the tax return, they had paid only $27,000 of these accrued bonuses.

GAAP requires recognition of tax amounts thus deferred, as income tax expense, and a liability shown for this amount. Assume (for purposes of discussion) that the tax rate is 30%.

Should the deferred income tax liability show:

A) $15,000 (30% of the amount accrued)
B) $ 8,100 (30% of the tax benefit received)

I would say that your actual tax expense for the year on the year-end bonuses would be $8,100. The deferred liability would be $6,900. The entry would be a dr to income tax expense of 15,000, a credit to current tax liability of 8,100 and a credit to deferred income taxes of 6,900.

Maribeth

[Snaggletooth]

Thank You Ladies

To Ms. Hoffman and Maribeth -

If I do what Ms. Hoffman suggests, I get exactly what Meribeth has concluded. Looks like my question is answered...

Thanks, Snag