E19-11B (Three Differences, Classify Deferred Taxes) At December 31, 2014, Rockf
ID: 2445315 • Letter: E
Question
E19-11B (Three Differences, Classify Deferred Taxes) At December 31, 2014, Rockfellow Corp. had a
net deferred tax asset of $50,000. An explanation of the items that compose this balance is as follows.
Resulting Balances
Temporary Differences in Deferred Taxes
1. Accrual, for book purposes, of estimated warranty costs.
Warranty costs will be deducted on the tax return when paid. $ 125,000
2. Excess of tax depreciation over book depreciation (110,000)
3. Accrual, for book purposes, of an estimated litigation
settlement expected to be paid in 2016. The loss will
be deducted for tax purposes when paid. 35,000
$ 50,000
In analyzing the temporary differences, you find that $30,000 of the depreciation temporary difference
will reverse in 2015, and $100,000 of the temporary difference due to the warranty costs will reverse in
2015. The tax rate for all years is 40%.
Instructions
Indicate the manner in which deferred taxes should be presented on Rockfellow’s December 31, 2014,
balance sheet.
Explanation / Answer
Answer:
Reversal is in 2015 that reverse the DTA and DTL.
Resulting deffered tax Temporary difference (Asset) Liability Warranty cost -125000 Excess of tax depreciation over book depreciation 110000 Estimated litigation settlement -35000 Total -160000 110000 Deffered tax 40% 40% DTA/DTL -64000 44000 Balance sheet Current Asset: DTA 64000 Non current Asset Defferrd tax liability 44000Related Questions
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