Isaac Inc. began operations in January 2016. For certain of its property sales,

Question

Isaac Inc. began operations in January 2016. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2016, Isaac had $676 million in sales of this type. Scheduled collections for these sales are as follows: 2016 $ 83 million 2017 137 million 2018 129 million 2019 162 million 2020 165 million $676 million Assume that Isaac has a 34% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2017, what deferred tax liability would Isaac report in its year-end 2017 balance sheet?

Explanation / Answer

2016 Sales as per books 676 Sales for IT purpose 83 Difference in income 593 Tax rate 34% Deffered tax liabilty 201.62 2017 Sales for IT purpose 137 Tax rate 34% tax liabilty 46.58 deferred tax liability at end of 2017 (201.61 - 46.58) 155.04

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