Luo Ltd. establishes a ¥90 million liability at the end of 2019 for the estimated litigation settlement for manufacturing defects. All related costs will be paid and deducted on the tax return in 2020. Also, at the end of 2019, the company has ¥50 million of temporary differences due to excess depreciation for tax purposes, ¥7 million of which will reverse in 2020.
The enacted tax rate for all years is 40%, and the company pays taxes of ¥64 million on ¥160 million of taxable income in 2019. Luo expects to have taxable income in 2020.
Instructions
a. Determine the deferred taxes to be reported at the end of 2019.
b. Indicate how the deferred taxes computed in (a) are to be reported on the statement of financial position.
c. Assuming that the only deferred tax account at the beginning of 2019 was a deferred tax liability of ¥10,000,000, draft the income tax expense portion of the income statement for 2019, beginning with the line "Income before income taxes."