Answer:
Task a:
Deferred tax asset = $40,800,000
Deferred tax liability = $20,400,000
Task b:
Indicate how the deferred taxes computed in (a) are to be reported on the balance sheet.
Note: Please see the attachments for the balance sheet*
Task c:
Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of $10,000,000, draft the income tax expense portion of the income statement for 2017, beginning with the line "Income before income taxes."
Please see the attachments for the Income statement*
Explanation:
<h2><u>Task a:</u></h2>Determine the deferred taxes to be reported at the end of 2017.
<u>Deferred tax asset</u>
Deferred tax asset = $102,000,000 × 40%
Deferred tax asset = $40,800,000 (answer)
<u>Deferred tax liability</u>
Deferred tax liability = $51,000,000 × 40%
Deferred tax liability = $20,400,000 (answer)
<h2><u>Task b:</u></h2>Indicate how the deferred taxes computed in (a) are to be reported on the balance sheet.
<h2><u>Explanation:</u></h2><u>Deferred tax asset</u>
- When <u>income tax expense is smaller than income tax payable</u> as a result of deducting any <u>non-cash expenses</u> in accounting books, some income tax expense is deferred to the future.
- The<u> larger</u> income tax payable on tax returns creates a <u>deferred tax asset</u>, which companies can use to pay for deferred income tax expense in the future.
- Deferred tax assets may be presented as <u>current assets</u> if a temporary difference between <u>accounting income</u> and <u>taxable income</u> is reconciled the following year.
<u>Deferred tax liability</u>
- When<u> income tax expense is greater than income tax payable</u> as a result of no recognition of any noncash revenues in tax returns, some income payable is deferred to the future.
- The <u>smaller</u> income tax payable on tax returns creates a <u>deferred tax liability</u>, which companies must meet by paying any deferred income tax payable in the future.
- Deferred liabilities may be presented as <u>current liabilities</u> if a temporary difference between accounting income and taxable income is reconciled the following year.
Note: <u>The balance sheet extract is attached:</u>
<u></u>
<h2><u>Task c:</u></h2>Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of $10,000,000, draft the income tax expense portion of the income statement for 2017, beginning with the line "Income before income taxes."
Note: <u>The income statement extract is attached:</u>
Note: <u>The relevant working also attached</u>
<u></u>
