Work Assignment $2$

As part of the year$-$end financial closing process for the fiscal yoar ending December $31,2024,$ you have been tasked with updating the company's delerred tax assets $($DTAs$)$ and deferred tax liablities $($DTLs$).$ You must analyze GAAP $/$ tax issues, such as permanent and temporary differences between tinanclat accounting $($GAAP$)$ and income tax reporting. determine appropriate income tax expense and delerred tax asset and liablity balances, prepare al needed joumal entries, and consider any other GAAP$/$Tax issues for the books. You must also document your rationale for the amounts that should be reported on the income statement and balanoe sheet for the year ending $12/31/24.$

Information from the CFO

Intemediate Corporation reports its financial statements following U$.$S$.$ GAAP and Fles income taves under U$.$S$.$ tax law. The company has had consistent profiability in limes past, but tariffs enacted in $2024$ are expected to harm future earnings. Firm management expects several years from $2025$ to $2029$ to yield yearly net losses.

Duta from the Accounting System

Sales in $2024$ are $$40,000,000,$ and net income after taxes is $$12,400,000.$ The enacted federal corporate tax rate is $21\%.$ For tax purposes, Intermediate uses accelerated depreciation. For book purposes, straight$-$line depreciation is used. In $2024,$ depreciation expense per books was $$1,200,000,$ while tax depreciation was $$1,800,000.$

Intermediate uses the percentage$-$ol$-$sales method of estimating warranty expense. For $2024,$ the company used $2\%$ as the expected warranty expense. The fim paid $9656,000$ in labor and used $$222,000$ in parts from its parts inventory to cover warranty repars in $2004.$ The Warranty Liablity Account had a balance of $$2\mathrm{.}000$ on January $1,2024,$ before any other entries were made

Intermediate $$1,100,000$ in advance from customers for services to be provided evenly over the neat two years per GAMP. Tax law may treat this dfferently.

Imtermediate recognized $$500,000$ in book income from an installment sale, but only $$300,000$ was reported for tax purposes due to timing differences in cash collections.

In addition to these times, the company incurred a tax NOL of $$900,000.$ As of December $31,2024,$ this amount is still available for carrylonwand. About half of this amount is expected to be used going forward.