Chapter 16, Problem 16.6BYP

1.

To determine

Disclosure issues of deferred tax and balance sheet classifications

Deferred tax account shows the amount of reconciliation, which occurs due to the difference between the income tax expense account and the income tax payable account. When the Income Tax Expense account i.e. the estimated income tax amount is more than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be debited to Deferred Tax Asset account. Similarly, when the Income Tax Expense account i.e. the estimated income tax amount is less than the outstanding amount of income tax i.e. the Income Tax Payable account, the difference is to be credited to Deferred Tax Liability account.

Deferred tax assets or liability are shown in balance sheet as net amount, if deferred tax asset is more than deferred tax liability then net amount of deferred tax asset is shown in asset side of balance sheet or vice versa.

To prepare:  The summary journal entry to record income tax expense.

2.

To determine

To compare: The change in deferred tax amount as per summary journal and actual changes of deferred taxes