Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations.

Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company

also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate

for 2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax

liability in the December 31, 2011, balance sheet is

A. $35 million.

B. $16 million.

C. $40 million.

D. $56 million.

Question

Business

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8 September, 02:16

Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations.

Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company

also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate

for 2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax

liability in the December 31, 2011, balance sheet is

A. $35 million.

B. $16 million.

C. $40 million.

D. $56 million.

+3

Answers (1)

Know the Answer?

Markus Maynard · Answer 1

C. $40 million

Explanation:

Deferred Tax only caters temporary differences and hence

Deferred tax liability in the December 31, 2011, balance sheet is ($100M x 40%) = $40M.

There is no impact of non-tax-deductible expenses of $80 million relating to permanent differences on deferred tax liability account.