Answer:
i. Deferred income taxes balance on December 2019 is $192,500
ii. Deferred tax asset.
Explanation:
Year Tax purpose Book purpose Difference Deferred tax book
2017 $400,000 $0 $400,000 $140,000
2018 $625,000 $375,000 $250,000 $87,500
2019 $750,000 $850,000 ($100,000) (<u>$35,000)</u>
Deferred tax asset balance on December 2019 = <u>$192,500</u>
<u><em>Working</em></u>
<u>Deferred tax book</u>
2017 = 400,000 * 35% = $140,000
2018 = 250,000 * 35% = $87,500
2019 = (100,000) * 35% = ($35,000)
ii. Book income is less than tax income in 2017 and 2018. Deferred tax asset would be accounted. Book income is higher than tax income in 2019. Deferred tax asset would be reverse (i.e. deferred tax liability). Balance at the end of December 31, 2019 would be Deferred tax asset.
