Times-Roman Publishing Company reports the following amounts in its first three years of operation: ($ in thousands) 2021 2022 2023 Subscription revenue recognized (earned) $ 310 $ 330 $ 290 Subscription payments received in cash 350 310 330 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 the performance obligation is satisfied. The income tax rate is 25% each year. Times-Roman anticipates profitable operations in the future. Required: 1. What is the balance sheet account that gives rise to a temporary difference in this situation? 2. Determine the amount of deferred subscription revenue at the end of each year. (Enter all amounts as positive values.) 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? (Enter all amounts as positive values.)
How do you get the answer?
Times-Roman Publishing Company reports the following amounts in its first three years of operation:
| ($ in thousands) | 2021 | 2022 | 2023 | ||||||
| Subscription revenue recognized (earned) | $ | 310 | $ | 330 | $ | 290 | |||
| Subscription payments received in cash | 350 | 310 | 330 | ||||||
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 the performance obligation is satisfied. The income tax rate is 25% each year. Times-Roman anticipates profitable operations in the future.
Required:
1. What is the balance sheet account that gives rise to a temporary difference in this situation?
2. Determine the amount of deferred subscription revenue at the end of each year. (Enter all amounts as positive values.)
3. Determine the balance in the related
Amount of Deferred Subscription Revenue = Beginning balance + Subscription payments received - Subscription revenue recognized
End of 2021 = $350-310 = $40
End of 2022 = $40+310-330 = $20
End of 2023 = $20+330-290 = $60
Deferred tax assets = Amount of Deferred Subscription Revenue x tax rate
End of 2021 = $40*25% = $10
End of 2022 = $20*25% = $5
End of 2023 = $60*25% = $15
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