This posting addresses the presentation of deferred taxes.
At December 31, 2010 Cascade had a net deferred tax liability of $45,000. An explanation of items that compose the balance is as follows
Temp differences: Resulting balance in deferred taxes:
-Excess tax depreciation over book depreciation $200,000
-Accrual for book purposes, of estimated loss contingency
from pending lawsuit that is expected to be settled
in 2011. The loss will be deducted on 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 $300,0000
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$450,000
In analyzing the temporary difference you find that $30,000 of depreciation temporary difference will reverse in 2011, and 120,000 of temporary difference due to the installment sale will reverse in 2011. The tax rate for all years is 40%
Indicate the manner in which deferred taxes should be presented on Cascades December 31, 2010 balance sheet.
Solution Preview
At December 31, 2010 Cascade had a net deferred tax liability of $45,000. An explanation of items that compose the balance is as follows
Temp differences: Resulting balance in deferred taxes:
-Excess tax depreciation over book depreciation $200,000
-Accrual for book ...
Solution Summary
The solution provides a detailed answer to how Cascade's deferred taxes should be presented on their balance sheet.