Ady Auto Group reported pretax income of $48 000 a

Ans:B.
The answer can be derived by creating the journal entry to record the tax expense for the period. The correct tax expense of $14,400 is the plug figure to make the entry balance.
Income tax expense (Plug) 14,400
Deferred tax asset ($12,000*30%) 3,600
Income taxes payable ($60,000 TI*30%) 18,000
Logically, the answer makes sense as well. The estimated warranty expense is accrued for financial reporting purposes, resulting in a temporary difference that will reverse in a future period when the warranty payments are actually made and deducted on the tax return, thus creating a deferred tax asset.
A is incorrect. This answer subtracted the $12,000 difference between pretax income and taxable income from taxes payable, rather than subtracting the $3,600 ($12,000*30%) wax effect of the difference.
C is incorrect. This answer incorrectly reflects the deferred tax impact from the warranty expense as liability, rather than an asset.