At December 31, DePaul Corporation had a $22 million balance in its deferred tax
ID: 2518911 • Letter: A
Question
At December 31, DePaul Corporation had a $22 million balance in its deferred tax asset account and a $170 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences:
Estimated warranty expense, $25 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty).
Depreciation expense, $250 million: straight-line in the income statement; MACRS on the tax return.
Income from installment sales of properties, $175 million: income recorded in the year of the sale; taxable when received equally over the next five years.
Rent revenue collected in advance, $30 million; taxable in the year collected; recorded as income when the performance obligation is satisfied in the following year.
Required:
Assuming DePaul will show a single noncurrent net amount in its December 31 balance sheet, indicate that amount and whether it is a net deferred tax asset or liability. The tax rate is 40%.
Determine the deferred tax amounts to be reported in the December 31 balance sheet. The tax rate is 40%. (Enter your answers in millions.)
Explanation / Answer
a) ($ in millions) Related Balance Sheet Account Classification Current (C) and Non Current (NC) Future Taxable (Deductible Amount) Tax Rate Deferred tax (asset) Liability Current Non Current Liability – warranty expense C -$25.00 x 40% -$10.00 Depreciable assets NC $250.00 x 40% $100.00 Receivable – installment sales ($175/5) C $35.00 x 40% $14.00 Receivable – installment sales ($175 - $35) NC $140.00 x 40% $56.00 Unearned rent revenue C -$30.00 x 40% -$12.00 Net currentliability (asset) -$8.00 Net noncurrentliability (asset) $156.00 b) Current Assets: Deferred tax asset $8.00 Long-Term Liabilities: Deferred tax liability $156.00
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