At December 31, 2013, Belmont Company had a net deferred tax liability of $478,0

Question

At December 31, 2013, Belmont Company had a net deferred tax liability of $478,010. An explanation of the items that compose this balance is as follows.

Temporary Differences

Resulting Balances
in Deferred Taxes

$219,830

(68,320

)

326,500

$478,010

In analyzing the temporary differences, you find that $39,280 of the depreciation temporary difference will reverse in 2014, and $115,380 of the temporary difference due to the installment sale will reverse in 2014. The tax rate for all years is 30%.

Indicate the manner in which deferred taxes should be presented on Belmont Company’s December 31, 2013, balance sheet.

Belmont Company’s
Balance Sheet
December 31, 2013

Temporary Differences

Resulting Balances
in Deferred Taxes

1. Excess of tax depreciation over book depreciation

$219,830

2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2014. The loss will be deducted on the tax return when paid.

(68,320

)

3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment.

326,500

$478,010

Explanation / Answer

The net balance of deferred tax liability of $478,010*30% = $143,403 shall be shown as a part of Stockholder's Equity as a sub-head Deferred Tax Liability.

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