FASB #96

28

28

Assume year 3 taxable income = $9,000 x .3 = tax payable of $2,700.

Now reversal: year 4 excess still $4,000 x .3 = $1,200.

• Total liability should now be $1,200.
• Liability already carries a balance of $3,000. You must adjust to the correct balance.

Journal entry year 3:

Tax expense 900

Deferred tax liability 1,800
Tax payable 2,700

Next year should completely reverse out.

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