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Chapter 19: Question 15BE (page 1094)

Youngman Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes. Deferred tax liability related to depreciation difference $38,000 Deferred tax asset related to warranty liability 62,000 Deferred tax liability related to revenue recognition 96,000 Deferred tax asset related to litigation accruals 27,000 Indicate how these balances would be presented in Youngman’s December 31, 2017, balance sheet.

Short Answer

Expert verified

Litigation riskis alegal actionthat thecourt of lawtakes against the organization due to anyillegal practice. The litigation risk can come from the organization'sclients or customers.

Step by step solution

01

Calculation of the deferred tax asset and the deferred tax liability

Deferredtaxasset=Deferredtaxassetrelatedtowarrantyliability-Deferredtaxassetrelatedtodepreciationdifference=$62,000-$38,000=$24,000

Deferredtaxasset=Deferredtaxliabilityrelatedtorevenuerecognition-Deferredtaxliabilityrelatedtolitigationaccruals=$96,000-$27,000=$69,000

02

Indication of the amounts

Youngman Corporation
Balance Sheet

Liabilities

Amount

Long-term liabilities

Deferred tax liability

$69,000

Assets

Amount

Current assets

Deferred tax asset

$24,000

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Most popular questions from this chapter

At December 31, 2017, Suffolk Corporation had an estimated warranty liability of \(105,000 for accounting purposes and \)0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%. Compute the amount Suffolk should report as a deferred tax asset at December 31, 2017.

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What are the possible treatments for tax purposes of a net operating loss? What are the circumstances that determine the option to be applied? What is the proper treatment of a net operating loss for financial reporting purposes?

Pretax financial income for Lake Inc. is \(300,000, and its taxable income is \)100,000 for 2018. Its only temporary difference at the end of the period relates to a $70,000 difference due to excess depreciation for tax purposes. If the tax rate is 40% for all periods, compute the amount of income tax expense to report in 2018. No deferred income taxes existed at the beginning of the year.

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