Duncan Inc. uses the accrual method of accounting for financial reporting purpos

Question

Duncan Inc. uses the accrual method of accounting for financial reporting purposes and appropriately uses the installment method of accounting for income tax purposes. Profits of $1,200,000 recognized for books in 2017 will be collected in the following years 2018 2019 2020 Collection of Profits $200,000 $400,000 $600,000 The enacted tax rates are: 40% for 2017, 35% for 2018, and 30% for 2019 and 2020 Taxable income is expected in all future years. What amount should be included in the December 31, 2017, balance sheet for the deferred tax liability related to the above temporary difference? a. $ 70,000 b. $300,000 c. $370,000 d. $480,000

Explanation / Answer

c. $370,000

Amount to be included in the December 31, 2017, balance sheet for the deferred tax liability related to the above temporary difference:

= ($200,000 * 0.35) + [($400,000 + $600,000) * 0.30]

= $370,000

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