Reference no: EM131818474

Question - At the beginning of 2012, Dolly, Inc. has a deferred tax asset of $5,000 and deferred tax liability of $9,000. In 2012, pretax financial income was $725,000 and the tax rate was 40%.

Pretax income included:

Interest income from municipal bonds $30,000

Accrued warranty costs, estimated to be used in 2013 $96,000

Prepaid rent expense, will be used in 2013 $18,000

Installment sales revenue, to be collected in 2013 $34,000

Operating loss carryforward $52,000

What is the adjustment needed to correct the balance of deferred tax asset for 2012?

$38,400 DR

$20,800 CR

$20,800 DR

$33,400 DR