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Chapter 19: 4CA_a (page 1106)

This year, Gumowski Company has each of the following items in its income statement. 1. Gross profits on installment sales. 2. Revenues on long-term construction contracts. 3. Estimated costs of product warranty contracts. 4. Premiums on officers’ life insurance policies with Gumowski as beneficiary. Instructions (a) Indicate where deferred income taxes are reported in the financial statements.

Short Answer

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Insurance policies are plans that secure the individual from suffering any contingency. Some of the policies are life insurance, fire insurance, marine insurance, etc.

Step by step solution

01

(1) Gross profits on installment sales

It will be recognized as deferred tax income when the amount of gross profits on installment sales are added to the pretax financial income during the current year and included in the taxable amount.

02

(2) Revenues on long-term construction contracts

The organization will recognize it as deferred income taxes whenever it recognizes the revenue from the long-term construction contract.

03

(3) Estimated costs of product warranty contracts

As per the financial reporting purpose, the warranty cost (estimated) will be recognized upon sale, and the money has been paid. Only then will it be recognized as the deferred tax income.

04

(4) Premiums on officers’ life insurance policies with Gumowski as beneficiary

It will be recognized as a permanent difference since it will be used as income-tax deductible while calculating the firm's taxable income.

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Most popular questions from this chapter

What are some of the reasons that the components of income tax expense should be disclosed and a reconciliation between the effective tax rate and the statutory tax rate be provided?

Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.

Jennifer Capriati Corp. has a deferred tax asset account with a balance of \(150,000 at the end of 2016 due to a single cumulative temporary difference of \)375,000. At the end of 2017, this same temporary difference has increased to a cumulative amount of \(450,000. Taxable income for 2017 is \)820,000. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2016. Instructions (a) Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized. (b) Assuming that it is more likely than not that $30,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2017 to record the valuation account.

The book basis of depreciable assets for Erwin Co. is \(900,000, and the tax basis is \)700,000 at the end of 2018. The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2018.

How are deferred tax assets and deferred tax liabilities reported on the statement of financial position under IFRS?
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