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  • This creates a deferred tax liability because we will be recording more expense in the future. We compute the deferred tax asset as follows: NOTE that the income tax expense of $2,450, which was a plug for us, works out to be 35% of the GAAP ENTRY: 450000.00 0.40 180000.00 150000.00 30000.00 820000.00 0.40 328000.00 30000.00 328000.00
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  • Deferred Tax Liability Formula = Income Tax Expense – Taxes Payable + Deferred Tax Assets. Year 1 – DTL = $350 – $300 + 0 = $50; Year 2 – DTL = $350 – $300 + 0 = $50; Year 3 – DTL = $350 – $450 + 0 = -$100; Cumulative Deferred Tax Liablity on the Balance Sheet in our example will be as follows. Year 1 cumulative DTL = $50
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