Question

Accounting:

At December 31, DePaul Corporation had a $4 million balance in its deferred tax asset account and a $37 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences: Estimated warranty expense, $10 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty). Depreciation expense, $110 million: straight-line in the income statement; MACRS on the tax return. Income from installment sales of properties, $75 million: income recorded in the year of the sale; taxable when received equally over the next five years. Rent revenue collected in advance, $10 million; taxable in the year collected; recorded as income when the performance obligation is satisfied in the following year. Required: Assuming DePaul will show a single noncurrent net amount in its December 31 balance sheet, indicate that amount and whether it is a net deferred tax asset or liability. The tax rate is 20%. Determine the deferred tax amounts to be reported in the December 31 balance sheet. The tax rate is 20%. (Enter your answers in millions.)

Answer 1

Answer:

Assuming DePaul will show a single non-current net amount in its December 31 balance sheet, it will be a net deferred tax liability.

Deferred tax amounts to be reported in the December 31 balance sheet:

Net non current deferred tax liability = $34 million

Net Current deferred tax assets = $1 million

Workings:

Balance sheet Account Liability - Warranty Expense Depreciable assets Receivable -Installment sales Unearned Rent Revenue Amounts In Million Future taxable (deductible) Amount Tax Rate Current Non current ($10) 20% $110 20% $15 $60 20% ($10) 20% Deferred Tax (Asset) Liability Current Non current ($2) $22 $12 $3 ($2) $34 Net non-current Deferred Tax Liability Net current Deferred Tax Asset ($1)