At December 31, 2017, Vermont Industries reported three temporary differences be

Question

At December 31, 2017, Vermont Industries reported three temporary differences between accounting and taxable income. Vermont had $25,000 of future deductible amounts resulting from accrued warranty liabilities. Vermont offers customers a one year warranty on its products. Vermont had $55,000 in future taxable amounts associated with depreciation on property and equipment, and $15,000 in future taxable amounts associated with prepaid expenses that expire in 2018. No temporary differences existed at December 31, 2016. The income tax rate is 40%. Vermont would report the following amount(s) related to deferred taxes on its year end December 31, 2017 balance sheet:

Please explain and show work.

A) $18,000 net noncurrent deferred tax liability.
B) $4,000 current deferred tax asset and $22,000 noncurrent deferred tax liability. C) $10,000 noncurrent deferred tax asset and $28,000 noncurrent deferred tax

liability.
D) $4,000 noncurrent deferred tax asset and $22,000 noncurrent deferred tax

liability.

Explanation / Answer

Answer

A ) $ 18000 net noncurrent deferred tax liability

working

deferred tax liability = ( 55000 + 15000 ) * 40 %

= 28000

deferred tax asset = 25000 * 40 %

= 10000

deferred tax = 28000 - 10000

= 18000

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