Yen Inc.’s only temporary difference at the beginning and end of 2011 is caused by a $3.3-million deferred gain for tax purposes on an instalment sale of a plant asset. The related receivable (only one half of which is classified as a current asset) is due in equal instalments in 2012 and 2013. The related future tax liability at the beginning of the year is $1,320,000. In the third quarter of 2011, a new tax rate of 39% is enacted into law and is scheduled to become effective for 2013. Taxable income is expected in all future years.
Instructions
(a) Determine the amount to be reported as a future tax liability at the end of 2011. Indicate its proper classification(s).
(b) Prepare the journal entry (if any) that is necessary to adjust the future tax liability when the new tax rate is enacted into law.