On December 31, 2020 Delta Inc. recorded $28,000 deferred revenue on customer deposits received in advance of the satisfaction of performance obligations. However this amount is taxable in 2020 when cash was received. Assuming tax rate 25% and pretax GAAP income of $160,000 for 2020. Determine the GAAP basis of deferred revenue on December 30, 2020. Determine the tax basis of deferred revenue on December 30, 2020. Determine delta incs deferred tax asset balance on December 31, 2020. Record the income tax journal entry on December 31, 2020. Assuming zero beginning balances and deferred tax accounts and there are no other differences between accounting and tax income.
As per Generally Accepted Accounting Principles, the Income and expenses are accounted on accrual basis of accounting. So, the advance customer receipts should be deferred and not recognized as current year income. So, the taxable Income as per GAAP would ignore the advance revenue receipts. Hence, the Income tax as per GAAP would be $160,000*25%=$40,000
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