Lynch Company Had a Net Deferred Tax Asset of $68,000

question 56

Multiple Choice

Lynch Company had a net deferred tax asset of $68,000 at the beginning of the year, representing a net taxable temporary difference of $200,000 (taxed at 34%) . During the year, Lynch reported pretax book income of $800,000. Included in the computation were favorable temporary differences of $20,000 and unfavorable temporary differences of $50,000. At the beginning of the year, Congress reduced the corporate tax rate to 21%. Lynch's deferred income tax expense or benefit for the current year would be:

• A) Net deferred tax benefit of $6,300.
• B) Net deferred tax expense of $6,300.
• C) Net deferred tax benefit of $32,300.
• D) Net deferred tax expense of $32,300.

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Definitions:

Goodwill

An intangible asset that arises when a buyer acquires an existing business at a price higher than the fair market value of its net identifiable assets.

Fair Market Value

is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller in the market.

Identifiable Assets

Assets that can be separately identified and valued in a business combination, distinguishable from goodwill.

FIFO System

First-In, First-Out method, an inventory valuation strategy where the oldest items are sold or used first.