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 $681 million in sales of this type. Scheduled Collections for these sales are as follows: Assume that Isaac has a 35% 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? $78 million $161 million $190 million $238 million

Explanation / Answer

Solution.

Calculation of Deferred tax libility.

According to financial statement sales = $681

Cash collected up to year end 2017 = 84 + 138 = $222

Tax rate = 35%

Deferred tax libilities = $222 x 35% = 78million.

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