Question

Lake Corp., a newly organized company, reported pretax financial income of $100,000 for 20X0. Among the items reported in Lake's 20X0 income statement are the following:

Premium on officer's life insurance with Lake as owner and beneficiary of $15,000

Interest received on municipal bonds of $ 20,000

The enacted tax rate for 20X0 is 30% and 25% thereafter. In its December 31, 20X0, balance sheet, Lake should report a deferred income tax liability of:

a.$4,500

b.$0

c.$3,750

d.$28,500

Answer 1

b.$0

Step-by-step explanation:

As we know that

When there is a temporary discrepancy between financial income and taxable income a deferred tax benefit or liability occurs. Temporary difference means an benefit or cost with respect to treatment that has just a timing gap.

Moreover, the Premium on officer's life insurance is tax deductible i.e $15,000 as it is paid by the company due to which difference arise between the financial and taxable income.

And,

Interest received on municipal bonds $20,000 are mostly exempt from federal income tax.

Therefore, it shows no such difference as it indicates the permanent difference