Reference no: EM132701620

Problem 1: Sanchez Co. reported accounting basis income of $100,000 on its regular income statement which included a $30,000 warranty expense. However, due to IRS regulations, Sanchez could only deduct $20,000 of the warranty expense on its income tax return (taxable income). The rest of the $10,000 will be deductible on Sanchez's income tax return next year. Assuming a 20% tax rate, which of the following items would show up Sanchez's current year financial statements?

A. A $20,000 total income tax provision on the regular income statement, a $16,000 current tax liability on the balance sheet and a $4,000 deferred tax liability on the balance sheet.

B. A $20,000 total income tax provision on the regular income statement, a $22,000 current tax liability on the balance sheet and a $2,000 deferred tax asset on the balance sheet.

C. A $22,000 total income tax provision on the regular income statement, a $20,000 current tax liability and $2,000 deferred liability on the balance sheet.

D. None of the above.