Wright Co., organized on January 2, 2021, had pretax accounting income of $960,000 and taxable income of $3,120,000 for the year ended December 31, 2021. The only temporary difference is accrued product warranty costs which are expected to be paid as follows: 2022                   $720,000 2023                     360,000 2024                     360,000 2025                     720,000 The enacted income tax rates are 25% for 2021, 20% for 2022 through 2024, and 15% for 2025. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2021 balance sheet should be a.   $288,000. b.   $360,000. c.   $396,000. d.   $540,000.

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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.