Buck Co. has a deferred income tax liability in the amount of $192,000 at 31 December 20X7,
Question:
Buck Co. has a deferred income tax liability in the amount of $192,000 at 31 December 20X7, relating to a $600,000 receivable. This sale was recorded for accounting purposes in 20X7 but is not taxable until the cash is collected. In 20X8, $400,000 is collected. Warranty expense in 20X8 included in the determination of pre-tax accounting income is $165,000, with the entire amount expected to be spent and deductible for tax purpose in 20X9. Pre-tax accounting earnings are $735,000 in 20X8. The tax rate is 28% in 20X8.
Required:
1. What is the tax rate in 20X7?
2. What is the accounting carrying value and the tax basis of both the account receivable and the warranty liability, at the end of 20X7 and 20X8?
3. Calculate taxable income and income tax payable, compute the balance in the deferred income tax accounts, and prepare the tax journal entry for year-end 20X8.
4. Of the deferred tax adjustment recorded in requirement 2, how much is caused by the change in the tax rate and how much is caused by new temporary differences?
5. Calculate the deferred income tax that would be reported on the statement of financial position at the end of 20X8.
Introductory Statistics Exploring the World Through Data
ISBN: 978-0321978271
2nd edition
Authors: Robert Gould, Colleen Ryan