Question

Burger King is a cash-basis taxpayer but maintains its financial accounting records using full

Answer 1

Answer:

Explanation:

Given Data;

Profit from parcel of land = $10,000

Income tax structure: $20,000 of income is taxed at a rate of 10%.

All income above $20,000 is taxed at a rate of 20%.

Burger King current years taxable income = $38,000

Burger King total taxable income = $40,000

1. What tax rate should Burger King use in measuring (recording) deferred taxes on the $10,000?

From the question, federal income tax structure state that 20,000 of income should be taxed at a rate of 10%. That means Burger King will use 10% tax rate to record the deferred taxes on the $10,000.

2. Provide a brief written description of the proper tax rate to use in measuring deferred tax  expense for the current year?

The same tax rate set by federal income tax law is used for measuring current or deferred taxes. the company only need to indicate it while preparing their balance sheet .

Answer 2

Answer:

Defining current and deferred tax first;

Current Tax - Current tax is the amount of Income Tax determined to be payable in respect of taxable income for a period.

Deferred Tax - Deferred tax is the tax effect of the timing difference. The difference between the tax expenses (which is calculated on an accrual basis) and current tax liability to be paid for a particular period as per Federal Income Tax Law is called deferred tax (asset/liability). That is why Tax Expenses + Current Tax + Deferred Tax

on the basis of the above explanations the question has been solved below:-

Particulars Amount

Current Year Income as per financial accounting $ 48,000

Current Year Taxable Income as Income Tax Laws $ 38,000

Current Year Tax Payable on Income Taxable under Federal Income Tax Laws $ 5,600

Current Year Tax Payable on Income as per financial accounting $ 7,600

Deferred Tax Asset to be recorded in Books of Accounts $ 2,000

Tax Rate to be used to record Deferred Tax Asset in Books = 20%