Deferred Tax Practice Example:

Company CY company info includes the following:

MACRS depreciation 40K

Life insurance premium expense 15K

Muni bond interest 25K

% depletion in excess of cost depletion 10K

GAAP depreciation 48K

Warranty cost expenditures during the year 20K

Installment sale GP for tax 80K

Estimated warranty expense 27K

Installment sale GP for GAAP 91K

Pretax net income 66K

Tax rates for all years 30%

1/1/CY Account Balances (normal):

DTL - Depreciation 12,300

DTL GP Installment Sales 4,610

DTA - Warranty Costs 14,980

12/31/CY Temporary Difference Totals:

Future taxable: depreciation difference 33,800

installment sale GP difference 26,700

Future deductible: warranty difference 56,500

Calculate the CY YE balances in the DTL & DTA accounts.

DTL - Depreciation

DTL GP Installment sales

DTA - Warranty Costs

Determine the adjustments needed for theses DTA & DTL accounts (use the following T accounts).

DTL - Depreciation DTL GP Installment Sales DTA - Warranty Costs

Calculate taxable income & tax payable & record tax expense for the CY.

Pretax Net Income

Less:

Plus:

Taxable income

X tax rate

Tax payable