Buck Co. has a deferred income tax liability in the amount of $252,000 at 31 December 20X7, relating to a $840,000 receivable. This sale was recorded for accounting purposes in 20X7 but is not taxable until the cash is collected. In 20X8, $560,000 is collected. Warranty expense in 20X8 included in the determination of pre-tax accounting income is $236,000, with the entire amount expected to be spent and deductible for tax purposes in 20X9. Pre-tax accounting earnings are $780,000 in 20X8. The tax rate is 25% in 20X8. Required: 1. What was the tax rate in 20X7?
Buck Co. has a deferred income tax liability in the amount of $252,000 at 31 December 20X7, relating to a $840,000 receivable. This sale was recorded for accounting purposes in 20X7 but is not taxable until the cash is collected. In 20X8, $560,000 is collected. Warranty expense in 20X8 included in the determination of pre-tax accounting income is $236,000, with the entire amount expected to be spent and deductible for tax purposes in 20X9. Pre-tax accounting earnings are $780,000 in 20X8. The tax rate is 25% in 20X8. Required: 1. What was the tax rate in 20X7?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject: accounting
Transcribed Image Text:Buck Co. has a deferred income tax liability in the amount of $252,000 at 31 December 20X7, relating to a $840,000 receivable. This
sale was recorded for accounting purposes in 20X7 but is not taxable until the cash is collected. In 20X8, $560,000 is collected.
Warranty expense in 20X8 included in the determination of pre-tax accounting income is $236,000, with the entire amount expected
to be spent and deductible for tax purposes in 20X9. Pre-tax accounting earnings are $780,000 in 20X8. The tax rate is 25% in 20X8.
Required:
1. What was the tax rate in 20X7?
Answer is complete and correct.
30
%
Tax rate at 31 December 20X7
2. What is the accounting carrying value, the tax basis of the account receivable, and the warranty liability, at the end of 20X7 and
20X8? (Leave no cells blank - be certain to enter "0" wherever required.)
Warranty liability:
Accounting basis
Tax basis
Answer is complete and correct.
20x7
20x8
Accounts receivable:
Accounting basis
Tax basis
$ 840,000
0
0
0
$ 280,000
$ 236,000
0
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