6. [Analysis of deferred tax, CFA adapted] On December 29. 2000, Mother Prewitt's Handmade Cookies Corp acquires
Question:
6. [Analysis of deferred tax, CFA adapted] On December 29. 2000, Mother Prewitt's Handmade Cookies Corp acquires a nu- merically controlled chocolate chip-milling machine. Due to dif- ferences in tax and financial accounting, depreciation for tax purposes is $150,000 more than depreciation in the financial statements, adding $52.500 to deferred taxes At the same time. Mother Prewitt's sells $200,000 worth of cookies on an install- ment contract, recognizing the $100.000 profit immediately. For tax purposes, however, $80,000 of the profit will be recognized in 2001. requiring $27,200 of deferred taxes.
a. Compare the expected cash consequences of the two deferred tax items just described
Step by Step Answer:
The Analysis And Use Of Financial Statements
ISBN: 9780471375944
3rd Edition
Authors: Gerald I. White, Ashwinpaul C. Sondhi, Haim D. Fried