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    Times-Roman Publishing Company: Deferred Taxes

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    Times-Roman Publishing Company reports the following amounts in its first three years of operation:
    ($ in 000s) 2016 2017 2018
    Pretax accounting income $250 $240 $230
    Taxable income 290 220 260

    The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for tax purposes in the year received, but reported in the income statement in later years when earned. The income tax rate is 40% each year. Times-Roman anticipates profitable operations in the future.

    1. What is the balance sheet account for which a temporary difference is created by this situation?
    2. For each year, indicate the cumulative amount of the temporary difference at year-end.
    3. Determine the balance in the related deferred tax account at the end of each year. Is it a deferred tax asset or a deferred tax liability?
    4. How should the deferred tax amount be classified and reported in the balance sheet?

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    Solution Summary

    This solution looks at deferred taxes using the Times-Roman Publishing Company example.