Alvis corporation reports pretax accounting income of $400,000, but due to a single temporary difference, taxable income is only $250,000. at the beginning of the year, no temporary differences existed. required: 1. assuming a tax rate of 35%, what will be alvis’s net income? 2. what will alvis report in the balance sheet pertaining to income taxes?

 1. $260,000

2. $52,500 and  $87,500

Explanation:

1. It can be computed as follows :-

Net income = Accounting income before tax - Income tax expense

                    = $ 400,000 - ($400,000) * (35%)

                    = $260,000

2. As per balance sheet :-

Deferred tax liability = ( $400,000 - $250,000) * (35%) = $52,500

Income tax liability = ($250,000) * (35%) = $87,500

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