(Basic Accounting for Temporary Differences) Majoli Company appropriately uses the assetliability method to record deferred income taxes. Iva Majoli reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year.

Majoli received rent revenues in advance this year. These revenues are included in this year’s taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability.

Instructions

(a) What are the principles of the asset-liability approach?

(b) How would Majoli account for the temporary differences?

(c} How should Majoli classify the deferred tax consequences of the temporary differences on its balance sheet?