Calculate the deferred tax asset

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Question - McKenzie, Inc. is a calendar year C-corporation that issues audited financial statements. During the calendar year 2021, McKenzie, Inc., received $400,000 in interest income on its Salt Lake Airport Authority bonds. Because these bonds qualify as municipal bonds under applicable federal income tax rules, the interest on these bonds is not subject to federal income taxes. However, the income on these bonds must be reported on McKenzie's audited financial statements. Assume that the municipal bonds were acquired January 1, 2021 and that there are no other book tax differences between McKenzie's federal income tax return and audited financial statements for the calendar year 2021.

Will the tax adjustment account on the financial statements of McKenzie, Inc., be a deferred tax asset (debit), or deferred tax liability (credit)?

Assuming the applicable federal tax rate is 21%, calculate the deferred tax asset or deferred tax liability balance as of the last day of the calendar year 2021.

Reference no: EM132925965

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