At December 31, DePaul Corporation had a $16 million balance in its deferred tax

Question

At December 31, DePaul Corporation had a $16 million balance in its deferred tax asset account and a $68 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences:
1. Estimated warranty expense, $15 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty).
2. Depreciation expense, $120 million: straight-line in the income statement; MACRS on the tax return.
3. Income from installment sales of properties, $50 million: income recorded in the year of the sale; taxable when received equally over the next five years.
4. Bad debt expense, $25 million: allowance method for accounting; direct write-off for tax purposes.

Required:
Show how any deferred tax amounts should be classified and reported in the December 31 balance sheet. The tax rate is 40%.

Explanation / Answer

($ in millions)

                                                                                               Future                             Deferred
                                                           Classification             Taxable                          Tax (Asset)
        Related Balance                            current-C            (Deductible)       Tax            Liability
          Sheet Account                         noncurrent-NC          Amounts         Rate         C           NC

Liability

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