Shear, Inc., began operations in Year 1. Included in Shear’s Year 1 financial statements were credit loss expenses on accounts receivable of $1,400 and profit from an installment sale of $2,600. For tax purposes, the credit losses will be deducted and the profit from the installment sale will be recognized in Year 2. The applicable tax rate is 25%. In its Year 1 income statement, what amount should Shear report as deferred income tax expense?

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-02-14T02:11:36+01:00

Answer:

$300

Explanation:

Calculation for what amount should Shear report as deferred income tax expense

Using this formula

Deferred income tax expense=(installment sale Profit-Loss expenses on accounts receivable)*Tax rate

Let plug in the formula

Deferred income tax expense=(2,600-1,400)*25%

Deferred income tax expense=1,200*25%

Deferred income tax expense=$300

Therefore the amount that Shear should report as deferred income tax expense will be $300