Isaac Inc. began operations in January 2013. For certain of its property sales,

Question

Isaac Inc. began operations in January 2013. 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 2013, Isaac had $679 million in sales of this type. Scheduled collections for these sales are as follows:

176 million

$679 million

Assume that Isaac has a 26% income tax rate and that there were no other differences in income for financial statement and tax purposes.

Suppose that, in 2014, legislation revised the income tax rates so that Isaac would be taxed in 2015 and beyond at 36%, rather than 26%. Assume that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2014, what deferred tax liability would Isaac report in its year-end 2014 balance sheet? (Round your answer to the nearest whole million.)

Isaac Inc. began operations in January 2013. 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.

Explanation / Answer

Deferred Income = 121 + 172 + 176

= $469 million

Income tax rate = 36%

Deferred income tax liability = Deferred income x income tax rate

= 469 x 0.36

= $169 million

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