December 31, 2013 Cajun Inc. reported three temporary differences between accoun

Question

December 31, 2013 Cajun Inc. reported three temporary differences between accounting and taxable income. Cajun had $25,000 of future deductable amounts resulting from accured warranty liabilities. Cajun offers its customers a 1 year warranty on its products. Cajun had $55,000 in future taxable amounts associated with depreciation on property and equipment, and $15,000 in future taxable amounts associated with prepaid expenses that expire in 2014. No temporary differences exisited at December 31, 2012. The income tax rate is 40%.

Cajun would report the following amounts related to deferred taxes on its year end December 31, 2013 balance sheet

A)$4,000 non-current deferred tax asset and $22,000 non- current deferred tax liability

B)$18,000 net non current deferred tax liability

C)$4,000 current deferred tax asset and $22,000 non current deferred tax liability

D)$10,000 current deferred tax asset and $28,000 non current deferred tax liability

Explanation / Answer

Deferred Tax Asset 25000*40% 10000 Deferred Tax Liability 55000+15000 70000*40% 28000 Deferred Tax Liability 18000 28000-10000 The correct answer is b) $18,000 net non current deferred tax liability

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