In 2015 Charmed, Inc. recorded book income of $370,000. The company’s only temporary difference relates to a $60,000 installment sale that it recorded for book purposes; there are no permanent differences. Charmed anticipates receiving payments equally over the following three years. The current enacted tax rate in 2015 is 35%. The substantively enacted tax rates for the following three years are 30%, 35%, and 38%, respectively.

Under U.S. GAAP, what deferred tax amount should Charmed record for this temporary difference?

A) $20,000
B) $20,600
C) $21,000
D) $21,600

Answer: C
Explanation: C) $60,000 × 35%; substantively enacted. For operations within the U.S. taxing jurisdictions, guidance in Topic 740 is to be followed requiring entities to recognize the effect of the change in tax rates in the period of enactment. Under IFRS, tax rates that have been “substantively enacted” are also used.