Question

Question 12 --/1 View Policies Current Attempt in Progress Novak Co. establishes a $136,000,000 liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has $68,000,000 of temporary differences due to excess depreciation for tax purposes, $9,520,000 of which will reverse in 2018. The enacted tax rate for all years is 40%, and the company pays taxes of $87,040,000 on $217,600,000 of taxable income in 2017. Novak expects to have taxable income in 2018. Determine the deferred taxes to be reported at the end of 2017. Deferred tax assets $ 54,400,000 Deferred tax liabilities $ 27,200,000 List of Accounts Indicate how the deferred taxes computed above are to be reported on the balance sheet. Novak Co. Balance Sheet For the Year Ended December 31, 2017 Non-current Asset Deferred Tax Asset 27,200,000

Answer 1

1. The deferred tax expense to be transferred to the profit and loss account under income tax expense is calculated as follows,
   1. As the resulting closing balance is deferred tax asset, and the opening balance is deferred tax liability,
   2. Deferred tax liability should be converted to deferred tax asset for that both need to be added,
   3. Amount of deferred tax to be effected under income statement is 13,600,000 + 27,200,000 = 40,800,000.
   4. This amount is to be created as deferred tax asset by transferring to the income statement.
   5. And after that the total of taxes column would be 87,040,000-40,800,000 = 46,240,000.
   6. And the net loss would be 15,400,000-46,240,000 = 30,840,000.