Onyx Company's Income Statement Shows Net Income Before Income Tax

question 46

Multiple Choice

Onyx Company's income statement shows net income before income tax of $38,000. The company's tax return shows taxable income of $34,000. Company's tax rate is 40%. Which of the following entries would be used to record tax expense and tax payable?

• A) Debit Income tax expense $15,200 and credit Cash $15,200.
• B) Debit Deferred tax liability $13,600 and credit Income tax payable $13,600.
• C) Debit Income tax expense $15,200, credit Deferred tax liability $1,600 and credit Income tax payable $13,600.
• D) Debit Deferred tax liability $1,600, debit Income tax expense $13,600 and credit Income tax payable $15,200.

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Definitions:

Future Cash Flows

Estimates of the amount of money expected to be received or paid out by a business in future periods.

Internal Rate of Return

A metric used in financial analysis to estimate the profitability of potential investments, calculated as the rate of return that makes the net present value of all cash flows equal to zero.

Present Value

The current valuation of a future sum of money or cash flows, when evaluated at a given rate of return.

Desired Rate of Return

The return a investor expects to achieve from an investment.