Graham Department Stores reported the following year- end balances on its current balance sheet. Graham is subject to a 40% tax rate.

The beginning cumulative balances of the deferred tax accounts are as follows:
Account Beginning Balance
Deferred Tax Asset€” total €¦€¦€¦€¦€¦€¦€¦€¦ $ 41,000
Deferred Tax Liability€” total€¦€¦€¦€¦€¦€¦€¦ $ 300,000
Taxable income is $ 2,500,000 and book income is $ 2,331,500. Assume installment sales, warranties and subscriptions are one- year contracts.
Required
a. Compute the ending balances of the total deferred tax asset and total deferred tax liability.
b. Compute the deferred tax provision for the current year.
c. How should Graham classify the deferred tax accounts on the current balance sheet?
d. Prepare the journal entry to record the tax provision for the current year.

Transcribed Image Text:

GAAP Account Accounts Receivable-net Installment Sales Receivable EstimatedWarranty Liability Unearned Subscription Revenue Inventory Plant and Equipment-Net Investment in Affiliate Company (Equity method) Carrying Vale Tax Basis 105,500 125,000 75,000 32,000 120,000 650,000 500,000 1,350,500 00,000 500,000 method)675,0 675,00