Times-Roman Publishing Company reports the following amounts in its first three
ID: 2542447 • Letter: T
Question
Times-Roman Publishing Company reports the following amounts in its first three years of operation: ($ in 000s) 2016 2017 2018 Pretax accounting income $ 280 $ 260 $ 250 Taxable income 300 270 290 The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for tax purposes in the year received, but reported in the income statement in later years when earned. The income tax rate is 40% each year. Times-Roman anticipates profitable operations in the future. Required: 1. What is the balance sheet account for which a temporary difference is created by this situation? Unearned subscription Earned subscription 2. For each year, indicate the cumulative amount of the temporary difference at year-end. (Enter your answers in thousands.) 3. Determine the balance in the related deferred tax account at the end of each year. Is it a deferred tax asset or a deferred tax liability? (Enter your answers in thousands.) 4. How should the deferred tax amount be classified and reported in the balance sheet? Noncurrent Current
Explanation / Answer
Answer
1.
Unearned subscription
Beacuse,A liability for unearned subscription revenue is created , when subscription are received(Debit cash, credit liability-subscription
2
.The cumulative amount of the temporary difference at year-end:
3.
the balance in the related deferred tax account at the end of each year:
4.
The deferred tax amount be classified and reported in the balance sheet as a cuurent liability because subscriptions are made for one year.
Particulars 2016 2017 2018 Opening subscription amount 0 20 30 Pretax accounting income (280) (260) (250) Taxable income 300 270 290 Accounting book value 20 30 70 Tax basis 0 0 0 Temporary difference 20 30 70Related Questions
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