Chapter 19, Problem 15BE

To determine

Deferred tax asset: The process of paying over and above the required level of tax is termed deferred tax asset. These taxes are calculated and paid on the future expected income. In case the future expected inflow of cash reduces, the company can claim the excess tax paid in the form of tax relief or refund.

Deferred tax liability: Some business activities may create a dissimilarity between the amount recorded in the books and the taxable income. These differences create deferred tax liability. For example, Mr. J is a car dealer who sold a car on installment. The actual sale happened in the current year, but the benefits are receivable in the future years. This creates a difference in the books of accounts and the taxable account.

To determine the deferred tax liability and record the same in the balance sheet.

Given information:

Deferred tax liability related to depreciation is $38,000.

Deferred tax liability related to revenue recognition is $96,000.

Deferred tax asset related to warranty liability is $62,000.

Deferred tax asset related to litigation accruals is $27,000.