Question

At December 31, 2016, Blue Company had a net deferred tax liability of $371,300. An explanation of the items that compose this balance is as follows. Resulting Balances in Deferred Temporary Differences Taxes 1. Excess of tax depreciation over book depreciation $215,200 2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2017. The loss will be deducted on the tax return when paid. (49,200 ) 3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment. 205,300 $371,300 In analyzing the temporary differences, you find that $29,800 of the depreciation temporary difference will reverse in 2017, and $112,500 of the temporary difference due to the installment sale will reverse in 2017. The tax rate for all years is 40%. Indicate the manner in which deferred taxes should be presented on Blue Company's December 31, 2016, balance sheet.

Answer 1

solution: Temporary Defference (asset) liability classification 215.900 (non (usseut) (49200) Depreciation Law scit obligation Installment sale (112 500 xuo%) Installment sale (205300- 45000) Totals 45 OUD (current) (current) (woncurrent) 160300 $420500 $ (49200) Cussent assets & Deferred tax asset (49200-45000) - $ 4200 Long term liabilities: Deferred tox liability (215200+ (60300 ) = 335500 Income statement presentation - Income tax expense should be allocated to continuing Operations discontinued operations, extraordinary items, and prior period adjustments. This approach is referred as - intraperiod food allocation.