Question

Black Company, organized on January 2, 2014, had pre-tax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, 2014. The only temporary difference is accrued product warranty costs, which are expected to be paid as follows:
2015 . $100,000
2016 .. 50,000
2017 .. 50,000
2018 ... 100,000
Circumstances indicate that it is highly likely that Black will have taxable income in the future. It had no temporary differences in prior years. The enacted income tax rates are 35% for 2014, 30% for 2015 through 2017, and 25% for 2018.

Required:
In Black’s December 31, 2014, balance sheet, how much should the deferred tax asset be?



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  • CreatedSeptember 10, 2014
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