Question 15BE Youngman Corporation has tempora... [FREE SOLUTION]

Chapter 19: Question 15BE (page 1094)

Youngman Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes. Deferred tax liability related to depreciation difference $38,000 Deferred tax asset related to warranty liability 62,000 Deferred tax liability related to revenue recognition 96,000 Deferred tax asset related to litigation accruals 27,000 Indicate how these balances would be presented in Youngman鈥檚 December 31, 2017, balance sheet.

Short Answer

Expert verified

Litigation riskis alegal actionthat thecourt of lawtakes against the organization due to anyillegal practice. The litigation risk can come from the organization'sclients or customers.

Step by step solution

Calculation of the deferred tax asset and the deferred tax liability

$\begin{array}{rcl} Deferred tax asset & = & Deferred tax asset related to warranty liability - Deferred tax a s s e t related to depreciation difference \\ = & $ 62, 000 - $ 38, 000 \\ = & $ 24, 000 \end{array}$

$\begin{array}{rcl} Deferred tax asset & = & Deferred tax l i a b i l i t y related to r e v e n u e r e c o g n i t i o n - Deferred tax liability related to l i t i g a t i o n a c c r u a l s \\ = & $ 96, 000 - $ 27, 000 \\ = & $ 69, 000 \end{array}$

Indication of the amounts

Youngman Corporation
Balance Sheet
Liabilities	Amount
Long-term liabilities
Deferred tax liability	$69,000

Assets	Amount
Current assets
Deferred tax asset	$24,000

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Temporary differences	Resulting balance in deferred taxes
Excess of tax depreciation over book depreciation	\)200,000
Accruals, for book purpose, of estimated loss contingency from pending lawsuit that is expected to be settled in 2017. The loss will be deducted on the tax return when paid	(50,000)
Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment	225,000
	\(375,000

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Short Answer

Step by step solution

Calculation of the deferred tax asset and the deferred tax liability

Indication of the amounts

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