Black Company, organized on January 2, 20X1, had pre-tax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, 20X1. The only temporary difference is accrued product warranty costs, which are expected to be paid as follows: 20X2 20X3 20X4 20X5 $100,000 50,000 50,000 100,000 Circumstances indicate that it is highly likely that Black will have taxable income in the future. It had no temporary differences in prior years. The enacted income tax rate is 21%. Required: 1. In Black's December 31, 20X1, balance sheet, how much should the deferred tax asset be? 2. Suppose that as of December 31, 20X1, a newly enacted law called for the tax rate to change to 25%, effective January 1, 20X3. Then what would be the amount of the deferred tax asset at December 31, 20X1?
Black Company, organized on January 2, 20X1, had pre-tax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, 20X1. The only temporary difference is accrued product warranty costs, which are expected to be paid as follows: 20X2 20X3 20X4 20X5 $100,000 50,000 50,000 100,000 Circumstances indicate that it is highly likely that Black will have taxable income in the future. It had no temporary differences in prior years. The enacted income tax rate is 21%. Required: 1. In Black's December 31, 20X1, balance sheet, how much should the deferred tax asset be? 2. Suppose that as of December 31, 20X1, a newly enacted law called for the tax rate to change to 25%, effective January 1, 20X3. Then what would be the amount of the deferred tax asset at December 31, 20X1?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Black Company, organized on January 2, 20X1, had pre-tax accounting income of $500,000 and taxable income of
$800,000 for the year ended December 31, 20X1. The only temporary difference is accrued product warranty costs,
which are expected to be paid as follows:
20X2
20X3
20X4
20X5
$100,000
50,000
50,000
100,000
Circumstances indicate that it is highly likely that Black will have taxable income in the future. It had no temporary
differences in prior years. The enacted income tax rate is 21%.
Required:
1. In Black's December 31, 20X1, balance sheet, how much should the deferred tax asset be?
2. Suppose that as of December 31, 20X1, a newly enacted law called for the tax rate to change to 25%, effective
January 1, 20X3. Then what would be the amount of the deferred tax asset at December 31, 20X1?
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