At December 31, DePaul Corporation had a $22 million balance in its deferred tax

Question

At December 31, DePaul Corporation had a $22 million balance in its deferred tax asset account and a $90 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, $200 million: straight-line in the income statement; MACRS on the tax return.

3. Income from installment sales of properties, $25 million: income recorded in the year of the sale; taxable when received equally over the next five years.

4. Rent revenue collected in advance, $40 million; taxable in the year collected; recorded as income when earned the following year.

Required: Determine the deferred tax amounts to be reported in the December 31 balance sheet. The tax rate is 40%. (Enter your answers in millions.)

Current-assets ... ($ in millions)

Long-term liabilities ... ($ in millions)

Explanation / Answer

Point No. 1 Particulars Accounting Profit Tax Profit Unpaid Estmated Warranty Exp. $15 million To be considered when paid Tax Rate 40% Deferred Tax Asset (40% of $15 million) $6 million Point No. 2 As depreciation amount in accounting as well as tax purpose is same, there will be NIL impact on deferred tax asset / liability.MACRS method is also consider the straight line of method of depreciation calculation. Point No. 3 Particulars Accounting Profit Tax Profit Income from Installment sales $25 million To be considered when received Tax Rate 40% Deferred Tax Liability (40% of $25 million) $10 million Point No. 4 Particulars Accounting Profit Tax Profit Rent collected in advance to be considered when earned $40 million Tax Rate 40% Deferred Tax Asset (40% of $40 million) $16 million Answer Deferred tax amounts to be reported in December 31 Balancesheet Particulars Opening balance Adjustments Closing balance Deferred Tax Asset (in $ million) 22 22 44 Deferred Tax Liability (in $ million) 90 10 100

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