The following information is taken from ABC Company's 2019 financial records: P 1,500,000 Pretax accounting income Accrued warranty expense in excess of actual warranty expenditures Excess tax depreciation 24,500 (45,000) P 1,479,500 Taxable income

The following information is taken from ABC Company's 2019 financial records: P 1,500,000 Pretax accounting income Accrued warranty expense in excess of actual warranty expenditures Excess tax depreciation 24,500 (45,000) P 1,479,500 Taxable income

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter6: Deductions And Losses: In General

Section: Chapter Questions

Problem 56P

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

How much deferred tax liability must ABC report as of December 31,2020?
How much deferred tax liability must ABC report as of December 31,2019?
How much deferred tax asset must ABC report as of December 31,2019?

The following information is taken from ABC Company's 2019 financial records:
Pretax accounting income
Accrued warranty expense in excess of actual warranty expenditures
Excess tax depreciation
P 1,500,000
24,500
(45,000)
P 1,479,500
Taxable income
The temporary differences were created entirely in 2019. The future deductible amount is
expected to reverse in 2020 and the future taxable amount will reverse in equal amounts in the
next 3 years.
Tax rates are: 30% in 2019; 32% in 2020 ; 34% in 2021 and 35% in 2022.

Definition Definition Estimated future tax made while preparing accounts. Deferred tax is estimated based on past and present transactions from financial statements. It is not the actual tax that needs to be paid or is refundable from the revenue authority; it is an accounting entry. It is necessary to account for deferred tax due to difference between accounting profits and taxable profits.

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