Black Company, organized on January 2, 20X1, had pre-tax accounting income of $500,000 and taxable income of
Question:
Black Company, organized on January 2, 20X1, had pre-tax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, 20X1. The only temporary difference is accrued product warranty costs, which are expected to be paid as follows:
20X2 .......................... $100,000
20X3 .............................. 50,000
20X4 ............................. 50,000
20X5 ........................... 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 rate is 21%.
Required:
1. In Black’s December 31, 20X1, balance sheet, how much should the deferred tax asset be?
2. Suppose that as of December 31, 20X1, a newly enacted law called for the tax rate to change to 25%, effective January 1, 20X3. Then what would be the amount of the deferred tax asset at December 31, 20X1?
Step by Step Answer:
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer