Dexter Company appropriately uses the asset-liability method to record deferred income taxes. Dexter reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year. Dexter received rent revenues in advance this year. These revenues are included in this year’s taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability. Instructions (c) How should Dexter classify the deferred tax consequences of the temporary differences on its balance sheet?

Step by step solution

01

Introduction

The reporting of the amounts depends upon the nature and the amount of the deferred tax by the organization.

02

Classification of the deferred tax

Dexter can classify the amount of deferred tax under the assets and liabilities section of the organization's balance sheet. The deferred tax liability is reported under the liabilities section under the head of non-current liabilities. On the other hand, the deferred tax asset is reported under the current assets section.

Unlock Step-by-Step Solutions & Ace Your Exams!

• Full Textbook Solutions

  Get detailed explanations and key concepts

• Unlimited Al creation

  Al flashcards, explanations, exams and more...

• Ads-free access

  To over 500 millions flashcards

• Money-back guarantee

  We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!