Mahaffey Enterprises has a temporary difference resulting in future deductible amounts of $500,000, income taxes payable of $800,000, and a tax rate of 20 percent. What should they record as their income tax expense for this period?

Answer: Income tax expense $700,000

Explanation: Income taxes payable is equal to the sum of the income tax expense and the deferred tax asset.

Income taxes payable = $800,000

future deductible amounts = $500,000

Tax rate = 20% (0.2)

Firstly, calculate

deferred tax asset = (future deductible amounts x Tax rate)

deferred tax asset = $500,000 x 0.2

deferred tax asset = $100,000

Then, calculate the income tax expensive.

Income tax expense = (Income taxes payable - deferred tax asset)

Income tax expense = ($800,000 - $100,000)

Income tax expense = $700,000

Answer: $700,000

Explanation:

Given the following;

Income tax payable = $800,000

Future deductible amount = $500,000

Tax rate = 20%

Deferred tax asset (usually used to cut down taxable income due to incurred losses in a business)

Deferred tax = tax rate * future deductible amount

Deferred tax asset = (20:100) * 500,000

Deferred tax asset = 0.2 * 500,000

Deferred tax asset = $100,000

Therefore, income tax expense for this period Is;

Income taxes payable - deferred tax asset = $800,000 - $100,000

Income tax expense = $700,000