At December 31, DePaul Corporation had a $22 million balance in its deferred tax asset account and a $90 million balance in its deferred tax liability account The balances were due to the following cumulative temporary differences Estimated warranty expense, $15 million expense recorded in year of sale tax deductible when paid (one year warranty) Rent revenue collected in advance, $40 million taxable in the year collected recorded as income when earned the following year Depreciation Expense, $200 million straight line in the income statement MACRS on the tax return Income from installment sales of properties, $25 million income recorded in year of the sale taxable when received equally over the next five years (i e , $5 million per year for next 5 years) The enacted tax rate is 40 for the entire period in question Which of the following correctly classifies a component of deferred taxes as presented on the December 31 Balance Sheet Question 7 options Current Deferred Tax Asset $40 million Current Deferred Tax Liability $88 million Non current Deferred Tax Liability $80 million Non current Deferred Tax Liability $88 million

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 28, 2024

At December 31, DePaul Corporation had a $22 million balance in its deferred tax asset account and a $90 million balance in its deferred tax

At December 31, DePaul Corporation had a $22 million balance in its deferred tax asset account and a $90 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences:

Estimated warranty expense, $15 million: expense recorded in year of sale; tax-deductible when paid (one-year warranty)
Rent revenue collected in advance, $40 million; taxable in the year collected; recorded as income when earned the following year.
Depreciation Expense, $200 million: straight-line in the income statement; MACRS on the tax return.
Income from installment sales of properties, $25 million: income recorded in year of the sale; taxable when received equally over the next five years (i.e., $5 million per year for next 5 years).

The enacted tax rate is 40% for the entire period in question. Which of the following correctly classifies a component of deferred taxes as presented on the December 31 Balance Sheet?

Question 7 options:

Current Deferred Tax Asset: $40 million

Current Deferred Tax Liability: $88 million

Non-current Deferred Tax Liability: $80 million

Non-current Deferred Tax Liability: $88 million