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Chapter 19: Q10IFRS (page 1114)

At December 31, 2017, Cascade Company had a net deferred tax liability of \(450,000. An explanation of the items that compose this balance is as follows.

Temporary Differences in Deferred Taxes

Resulting Balances

1. Excess of tax depreciation over book depreciation.

\)200,000

2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2018. The loss will be deducted on the tax return when paid.

\( (50,000)

3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment.

\)300,000

In analyzing the temporary differences, you find that \(30,000 of the depreciation temporary difference will reverse in 2018, and \)120,000 of the temporary difference due to the installment sale will reverse in 2018. The tax rate for all years is 40%.

Instructions

Indicate the manner in which deferred taxes should be presented on Cascade Company鈥檚 December 31, 2017, statement of financial position.

Short Answer

Expert verified

Deferred tax liability of $450,000, will be reported under non-current liability on balance sheet.

Step by step solution

01

Meaning of Depreciation

Depreciation is the accounting practice of assigning the cost of tangible assets to expenses systematically and sensibly to the periods in which the asset is expected to be used.

02

Indicating deferred tax in the financial statement.

Non-current liabilities

Deferred tax liability

$450,000

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Most popular questions from this chapter

Differentiate between an originating temporary difference and a reversing difference.

At the end of the year, Falabella Co. has pretax financial income of \(550,000. Included in the \)550,000 is \(70,000 interest income on municipal bonds, \)25,000 fine for dumping hazardous waste, and depreciation of \(60,000. Depreciation for tax purposes is \)45,000. Compute income taxes payable, assuming the tax rate is 30% for all periods.

Lincoln Company has the following four deferred tax items at December 31, 2017. The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same tax authority.

Temporary difference

Deferred tax asset

Deferred tax liability

Rent collected in advance: recognized when a performance obligation is satisfied for accounting purposes and when received for tax purposes.

\(652,000

Use of straight-line depreciation for accounting purposes and accelerated depreciation for tax purposes.

\)330,000

Recognition of income on installment sales at the time of sale for accounting purposes and during period of collection for tax purposes.

\(64,000

Warranty liabilities: recognized for accounting purposes at time of sale for tax purposes at time paid.

\)37,000

On Lincoln鈥檚 December 31, 2017, statement of financial position, it will report:

  1. \(394,000 non-current deferred tax liability and \)689,000 non-current deferred tax asset.
  2. \(330,000 non-current liability and \)625,000 current deferred tax asset.
  3. \(295,000 non-current deferred tax asset.
  4. \)295,000 current tax receivable.

The amount of income taxes due to the government for a period of time is rarely the amount reported on the income statement for that period as income tax expense. (c) List the steps in the annual computation of deferred tax liabilities and assets.

The amount of income taxes due to the government for a period of time is rarely the amount reported on the income statement for that period as income tax expense. (b) Explain the basic principles that are applied in accounting for income taxes at the date of the financial statements to meet the objectives discussed in (a).
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