AA Company began operations at the beginning of 2020. The following information pertains to this company:Pretax financial income for 2020 is P100,000The tax rate enacted for 2020 and future years is 40%Differences between 2020 income statement and the tax return are listed below: Warranty expense accrued for financial reporting purposes amounts to P7,000. Warranty deductions per tax return amounted to P2,000Income on construction contracts using the percentage of completion method per books amounts to P92,000. Income on construction contracts for tax purposes amounts to P67,000.Depreciation of PPE for financial reporting purposes amounts to P60,000. Depreciation of these assets amounts to P80,000 for the tax return.A P3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income.Interest revenue earned on an investment in tax-exempt bonds amounts to P1,500. Taxable income is expected for the next few years.Compute the deferred tax asset at December 31, 2020 relating to the temporary differences described above.

Deferred taxes arise only in the event of transactions causing temporary differences between book…

Answered: Compute the deferred tax asset at…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter18: Accounting For Income Taxes

Section: Chapter Questions

Problem 9MC: Brooks Company reported a prior period adjustment of 512,000 in pretax financial "income" and...

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AA Company began operations at the beginning of 2020. The following information pertains to this company:

Pretax financial income for 2020 is P100,000
The tax rate enacted for 2020 and future years is 40%
Differences between 2020 income statement and the tax return are listed below:
- Warranty expense accrued for financial reporting purposes amounts to P7,000. Warranty deductions per tax return amounted to P2,000
- Income on construction contracts using the percentage of completion method per books amounts to P92,000. Income on construction contracts for tax purposes amounts to P67,000.
- Depreciation of PPE for financial reporting purposes amounts to P60,000. Depreciation of these assets amounts to P80,000 for the tax return.
- A P3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income.
- Interest revenue earned on an investment in tax-exempt bonds amounts to P1,500.
Taxable income is expected for the next few years.

Compute the deferred tax asset at December 31, 2020 relating to the temporary differences described above.

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