At December 31, 2020, Novak Company had a net deferred tax liability of $445,000. An explanation of the items that compose this balance is as follows. Temporary Differences in Deferred Taxes Resulting Balances 1. Excess of tax depreciation over book depreciation. $ 188,000 2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2021. The loss will be deducted on the tax return when paid. $ (55,000 ) 3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment. $ 312,000 In analyzing the temporary differences, you find that $32,000 of the depreciation temporary difference will reverse in 2021, and $122,000 of the temporary difference due to the installment sale will reverse in 2021. The tax rate for all years is 40%. Indicate the manner in which deferred taxes should be presented on Novak Company's December 31, 202O, statement of fınancial position.

At December 31, 2020, Novak Company had a net deferred tax liability of $445,000. An explanation of the items that compose this balance is as follows. Temporary Differences in Deferred Taxes Resulting Balances 1. Excess of tax depreciation over book depreciation. $ 188,000 2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2021. The loss will be deducted on the tax return when paid. $ (55,000 ) 3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment. $ 312,000 In analyzing the temporary differences, you find that $32,000 of the depreciation temporary difference will reverse in 2021, and $122,000 of the temporary difference due to the installment sale will reverse in 2021. The tax rate for all years is 40%. Indicate the manner in which deferred taxes should be presented on Novak Company's December 31, 202O, statement of fınancial position.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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

In analyzing the temporary differences, you find that $32,000 of the depreciation temporary difference will reverse in 2021, and
$122,000 of the temporary difference due to the installment sale will reverse in 2021. The tax rate for all years is 40%.
Indicate the manner in which deferred taxes should be presented on Novak Company's December 31, 2020, statement of financial
position.
Novak Company
Balance Sheet (Partial)
December 31, 2020
Noncurrent Liabilities
Deferred Tax Liability
$
%24

At December 31, 2020, Novak Company had a net deferred tax liability of $445,000. An explanation of the items that compose this
balance is as follows.
Temporary Differences in Deferred Taxes
Resulting Balances
1.
Excess of tax depreciation over book depreciation.
$ 188,000
2.
Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is
expected
to be settled in 2021. The loss will be deducted on the tax return when paid.
$
(55,000 )
3. Accrual method used for book purposes and installment method used for tax purposes for an
isolated installment sale of an investment.
$ 312,000
In analyzing the temporary differences, you find that $32,000 of the depreciation temporary difference will reverse in 2021, and
$122,000 of the temporary difference due to the installment sale will reverse in 2021. The tax rate for all years is 40%.
Indicate the manner in which deferred taxes should be presented on Novak Company's December 31, 2020, statement of financial
position.

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