At December 31, 2016, Shamrock Company had a net deferred tax liability of $377,

Question

At December 31, 2016, Shamrock Company had a net deferred tax liability of $377,600. An explanation of the items that compose this balance is as follows.

(53,200

)

In analyzing the temporary differences, you find that $29,300 of the depreciation temporary difference will reverse in 2017, and $125,600 of the temporary difference due to the installment sale will reverse in 2017.

The tax rate for all years is 40%. Indicate the manner in which deferred taxes should be presented on Shamrock Company’s December 31, 2016, balance sheet.

Temporary Differences Resulting Balances in Deferred Taxes 1. Excess of tax depreciation over book depreciation $208,600 2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2017. The loss will be deducted on the tax return when paid.

(53,200

)

3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment. 222,200 377,600

Explanation / Answer

Solution:

Balance Sheet (Partial) Shamrock Company As on December 31, 2016 Liabilities Amount Assets Amount Non Current Liabilities: Current Assets: Deferred Tax Liability $368,840.00 Deferred Tax Assets $53,200.00 Current Liability: Deferred tax Liability [($125600 + $29,300) * 40%] $61,960.00

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