KER Commenced Operations in 2013

question 39

Multiple Choice

KER commenced operations in 2013.The company had recorded an accrual for warranty expenses in its books during the year ended December 31,2013,its first year of operations,amounting to $100,000.During the year 2014,customers required service from goods sold in 2014 amounting to $60,000.There were no similar expenditures made during 2013.KER recorded an amount for possible warranty costs for goods sold during the year in the amount of $95,000.Accounting income amounted to $80,000 and the tax rate is 40%.Assuming that KER has no other differences between accounting and tax what are the current and deferred income tax amounts that will appear on the 2014 statement of financial position?

• A) Income Taxes Payable (Current): $46,000; deferred tax asset: $54,000
• B) Income Taxes Payable (Current): $46,000; deferred tax liability: $54,000
• C) Income Taxes Payable (Current): $22,000; deferred tax asset: $14,000
• D) Income Taxes Payable (Current): $22,000; deferred tax liability: 14,000

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Definitions:

Substitution Effect

The substitution effect occurs when consumers replace more expensive items with less expensive alternatives due to a change in relative prices.

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Substitution Effect

The change in consumption that results from a change in the relative price of goods, leading consumers to substitute away from higher-priced goods.

Income Effect

The income effect describes the change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.