The amount of net deferred tax asset/(liability) at January 1, 2008 is?The amount of net deferred tax asset/(liability) at December 31, 2008 is?Income tax expense – current for 2008 is? You are the continuing auditor of CRESCENT Company. The comparative balance sheet ofCRESCENT Company for 2007 and 2008 follows:December 31ASSETS20072008Cash200,000115,000310,000Installment accounts receivable420,000InventoryEquipment-net of accumulated depreciation180,000360,000125,000480,000LIABILITIES AND SHEAccounts PayableUnearned rent150,00070,000200,00040,00060,000Estimated warranties obligationOther liabilities (including deferred tax liability)Stockholders' Equity120,000150,000670,000145,000585,000You have satisfied yourself as to the accuracy of the balances shown above. In addition, the followinginformation was obtained:a. The company's installment sales are taxable when cash is collectedb. CRESECENT Company uses the straight-line method of depreciation for financial reportingpurposes and sum of the years' digit method for tax purposes. The equipment was acquired inJan 2007 and was estimated to have 5-year life.c. Rental income is taxable when cash is received.d. Warranty expense is deductible only when actual expenditure is made.e. CRESECENT Company reported a taxable income of 1,000,000 for 2008.

Deferred tax Deferred tax arises when there is a difference in recognition of income and expenses…

You are the continuing auditor of CRESCENT Company. The comparative balance sheet of CRESCENT Company for 2007 and 2008 follows: December 31 ASSETS 2007 2008 Cash 200,000 420,000 115,000 310,000 Installment accounts receivable Inventory Equipment-net of accumulated depreciation 180,000 125,000 480,000 360,000 LIABILITIES AND SHE Accounts Payable Unearned rent 150,000 70,000 120,000 150,000 200,000 40,000 60,000 Estimated warranties obligation Other liabilities (including deferred tax liability) Stockholders' Equity 145,000 585,000 670,000 You have satisfied yourself as to the accuracy of the balances shown above. In addition, the following information was obtained: a. The company's installment sales are taxable when cash is collected b. CRESECENT Company uses the straight-line method of depreciation for financial reporting purposes and sum of the years' digit method for tax purposes. The equipment was acquired in Jan 2007 and was estimated to have 5-year life. c. Rental income is taxable when cash is received. d. Warranty expense is deductible only when actual expenditure is made. e. CRESECENT Company reported a taxable income of 1,000,000 for 2008.

You are the continuing auditor of CRESCENT Company. The comparative balance sheet of CRESCENT Company for 2007 and 2008 follows: December 31 ASSETS 2007 2008 Cash 200,000 420,000 115,000 310,000 Installment accounts receivable Inventory Equipment-net of accumulated depreciation 180,000 125,000 480,000 360,000 LIABILITIES AND SHE Accounts Payable Unearned rent 150,000 70,000 120,000 150,000 200,000 40,000 60,000 Estimated warranties obligation Other liabilities (including deferred tax liability) Stockholders' Equity 145,000 585,000 670,000 You have satisfied yourself as to the accuracy of the balances shown above. In addition, the following information was obtained: a. The company's installment sales are taxable when cash is collected b. CRESECENT Company uses the straight-line method of depreciation for financial reporting purposes and sum of the years' digit method for tax purposes. The equipment was acquired in Jan 2007 and was estimated to have 5-year life. c. Rental income is taxable when cash is received. d. Warranty expense is deductible only when actual expenditure is made. e. CRESECENT Company reported a taxable income of 1,000,000 for 2008.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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

The amount of net deferred tax asset/(liability) at January 1, 2008 is?

The amount of net deferred tax asset/(liability) at December 31, 2008 is?

Income tax expense – current for 2008 is?

You are the continuing auditor of CRESCENT Company. The comparative balance sheet of
CRESCENT Company for 2007 and 2008 follows:
December 31
ASSETS
2007
2008
Cash
200,000
115,000
310,000
Installment accounts receivable
420,000
Inventory
Equipment-net of accumulated depreciation
180,000
360,000
125,000
480,000
LIABILITIES AND SHE
Accounts Payable
Unearned rent
150,000
70,000
200,000
40,000
60,000
Estimated warranties obligation
Other liabilities (including deferred tax liability)
Stockholders' Equity
120,000
150,000
670,000
145,000
585,000
You have satisfied yourself as to the accuracy of the balances shown above. In addition, the following
information was obtained:
a. The company's installment sales are taxable when cash is collected
b. CRESECENT Company uses the straight-line method of depreciation for financial reporting
purposes and sum of the years' digit method for tax purposes. The equipment was acquired in
Jan 2007 and was estimated to have 5-year life.
c. Rental income is taxable when cash is received.
d. Warranty expense is deductible only when actual expenditure is made.
e. CRESECENT Company reported a taxable income of 1,000,000 for 2008.

Definition Definition Estimated future tax made while preparing accounts. Deferred tax is estimated based on past and present transactions from financial statements. It is not the actual tax that needs to be paid or is refundable from the revenue authority; it is an accounting entry. It is necessary to account for deferred tax due to difference between accounting profits and taxable profits.

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