Isaac Inc. began operations in January 2018. For certain of its property sales,
ID: 2508659 • Letter: I
Question
Isaac Inc. began operations in January 2018. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2018, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows:
2018 $ 60 million
2019 120 million
2020 120 million
2021 150 million
2022 150 million
$ 600 million
Assume that Isaac has a 30% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2019, what deferred tax liability would Isaac report in its year-end 2019 balance sheet?
a. $126 million.
b. $54 million.
c. $144 million.
E. $180 million.
Explanation / Answer
SOLUTION
Deferred tax liability = $126 million
Future taxable income = $120 million + $150 million + $150 million = $420 million
Tax rate = 30%
Deferred tax liability = $420 million * 30% = $126 million
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.