(Three Differences, Classify Deferred Taxes) At December 31, 2014, Rockfellow Co
ID: 2462035 • Letter: #
Question
(Three Differences, Classify Deferred Taxes) At December 31, 2014, Rockfellow Corp. had a net deferred tax asset of $50,000. An explanation of the items that compose this balance is as follows. Resulting Balances Temporary Differences in Deferred Taxes 1. Accrual, for book purposes, of estimated warranty costs. Warranty costs will be deducted on the tax return when paid. $ 125,000 2. Excess of tax depreciation over book depreciation (110,000) 3. Accrual, for book purposes, of an estimated litigation settlement expected to be paid in 2016. The loss will be deducted for tax purposes when paid. 35,000 $ 50,000 In analyzing the temporary differences, you find that $30,000 of the depreciation temporary difference will reverse in 2015, and $100,000 of the temporary difference due to the warranty costs will reverse in 2015. The tax rate for all years is 40%. Instructions Indicate the manner in which deferred taxes should be presented on Rockfellow’s December 31, 2014, balance sheet.
Explanation / Answer
52,000
as on 31 Dec 2014
Warranty cost 125,000 Depreciation - 110,000 To be considered in 2015 Deffered tax Warranty cost 100,000 40,000 Depreciation 30,000 12,000 Total52,000
as on 31 Dec 2014
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