CFA Level I · CFA Level I Exam · Analysis of Income Taxes
A company reports income tax expense of 90 and an increase in deferred tax liability of 25. Taxes payable (current tax expense) are most likely closest to:
Current tax is about 65. Total income tax expense equals taxes payable plus the deferred tax expense, and the 25 increase in the deferred tax liability is a deferred expense. Subtracting 25 from 90 leaves 65 payable to the tax authority for the period.
- A65Correct
- B90
- C115
Explanation
Income tax expense = current tax + deferred tax expense. The deferred tax liability increase of 25 is deferred tax expense. Current tax = 90 - 25 = 65. Adding instead gives 115, which mistakes the sign of the deferred component.
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