WHAT IS DEFERRED TAX FUTURE TAX LIABILITY
Deferred tax liabilities is an account on a company's balance
sheet that occur when financial accounting income tax expense is
greater than regulatory income tax expense. It is based on a
temporary difference that result in a deficit amount paid for taxes
which the company expects to pay at a future date. Because there
are differences between what a company can deduct for tax and
accounting purposes, there is a difference between a company's
taxable income and income before tax. A deferred tax liability
records the fact the company will, in the future, pay more income
tax because of a transaction that took place during the current
period, such as an installment sale receivable.
Example:
A common source of deferred tax liability is the difference in
depreciation expense treatment by tax laws and accounting rules.
The depreciation expense for long-lived assets for financial
statements purposes is typically calculated using a straight-line
method, while tax regulations allow companies to use an accelerated
depreciation method. Since the straight-line method produces lower
depreciation when compared to that of the underaccelerated method,
a company's accounting income is temporarily higher than its
taxable income. The company recognizes the deferred tax liability
on the differential between its accounting earnings before taxes
and taxable income. As the company continues depreciating its
assets, the difference between straight-line depreciation and
accelerated depreciation narrows, and the amount of deferred tax
liability is gradually removed through a series of offsetting
accounting entries.
Why is this called deferred tax liability instead of deferred tax asset? Alvis Corporation reports pretax accounting income of $400,000, but due to a single temporary difference, taxable income is only $250.000. At the beginning of the year, no temporary differences existed Required: 1. Assuming a tax rate of 35%, what will be Alvis's net income? 2. What will Alvis report in the balance sheet pertaining to income taxes? Step-by-step solution Step 1 of 2 A Requirement 1 Since taxable...
Dutch Bakers has a $100,000 deferred tax liability that will create taxable income in 2020. Dutch established the deferred tax liability in 2017 when the tax rate was 40%. Part 1: What is the amount of future taxable income that Dutch will incur in 2020 associated with the deferred tax liability? a. $100,000 b. $200,000 c. $250,000 d. $400,000
At December 31, 2019. Acme Inc. had the following deferred tax balances: Deferred tax liability Deferred tax asset Valuation allowance $ 52.500 84,000 21.000 These deferred tax balances relate to two items. First, Acme has recorded excess tax deductions related to its plant assets. At December 31, 2019 plant assets had a book value of $1,000,000 and a tax basis of $750,000 Second, Acme had a NOL carryforward in the amount of $400.000 at December 31, 2019. Acme determined the...
At 30 June 2016, Grace Ltd had the following deferred tax balances: Deferred tax liability Deferred tax asset $18 000 15 000 Grace Ltd recorded a profit before tax of $80 000 for the year to 30 June 2017, which included the following items: Depreciation expense – plant Doubtful debts expense Long-service leave expense $7 000 3 000 4 000 For taxation purposes the following amounts are allowable deductions for the year to 30 June 2017: Tax depreciation – plant...
1. Deferred tax liability, January 1, 2017, $44,400. 2. Deferred tax asset, January 1, 2017, $0. 3. Taxable income for 2017, $105,450. 4. Pretax financial income for 2017, $222,000. 5. Cumulative temporary difference at December 31, 2017, giving rise to future taxable amounts, $266,400. 6. Cumulative temporary difference at December 31, 2017, giving rise to future deductible amounts, $38,850. 7. Tax rate for all years, 40%. 8. The company is expected to operate profitably in the future. (a) Your answer...
At the beginning of 2017, Newton Corporation had a Deferred Tax Liability account with a beginning balance of $23,500. This was due to $55,600 of temporary differences that will result in future taxable amounts. At the end of 2017, Newton Corporation had $184,000 of future taxable amounts. Newton’s taxable income for 2017 is $330,000. Taxable income is expected in all future years. The enacted tax rate for 2016 and all future years is 40% a. Prepare the journal entry for...
Snow Day Corporation has a deferred tax asset of $400,000 and a deferred tax liability od $300,000. How should these amounts be reported on Snow Day Corporation's balance sheet? as a noncurrent asset of $100,000 as a current asset of $400,000 and a current liability of $ 300,000. as a current asset of $100,000 as a noncurrent asset of $400,000 and a noncurrent liability of $300,000
(Deferred Tax Liability, Change in Tax Rate, Prepare Section of Income Statement) Novotna Inc.’s only temporary difference at the beginning and end of 2016 is caused by a $3 million deferred gain for tax purposes for an install- ment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal install- ments in 2017 and 2018. The related deferred tax liability at the beginning of the year is...
Why is this called a deferred tax asset and not a deferred tax liability? During its first year of operations, Nile.com reported a net operating loss of $15 million for financial reporting and tax purposes. The enacted tax rate is 40%. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Because the loss year is the Nile.com's first year of operations, the carryback option is unavailable. The loss is carried forward. Journal entry Deferred...
Danna Spice Inc. has the following Deferred tax assets and liabilities. Deferred Tax Assets Deferred Tax Liabilities Allowance for bad debts $72,450 Depreciation (2,100,000) Reserve for warranties 90,300 Net Operating loss carry-forward 5,040 Deferred Compensation 252,000 Contributions carry-forward 0 Capital Loss carry-forward 0 Valuation allowance for deferred tax assets 0 Deferred tax assets, net of valuation allowance $419,790 Total Deferred Tax Liabilites $(2,100,000) What should Danna Spice Inc. recognize on the balance for these deferred tax assets and liabilities? a....