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Mill Company: For all years, assume that the income tax rate is 40% and that there are no other timing differences. In its December 31, 2007 balance sheet, Mill should report deferred income taxes of how much? Indicate whether the amount is an asset or a liability.

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Mill Company began operations on January 1, 2005 and recognized income from construction type contracts under the percentage of completion method for tax purposes and the completed contract method for financial reporting purposes. Information concerning income recognition under each method is as follows:

Percentage of Completion completed Contract
Year (Tax Purposes) (Book Purposes)
2005 $400,000 $0
2006 625,000 375,000
2007 750,000 850,000

Required:

For all years, assume that the income tax rate is 40% and that there are no other timing differences. In its December 31, 2007 balance sheet, Mill should report deferred income taxes of how much? Indicate whether the amount is an asset or a liability.

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Solution Summary

The expert examines the income recognition for Mill Company.

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