Question
Truck Co., organized January 7th, 2015, has pretax accounting income of $720,000 and taxable income of $950,000 for the year ended December 31, 2015. The
Truck Co., organized January 7th, 2015, has pretax accounting income of $720,000 and taxable income of $950,000 for the year ended December 31, 2015. The only temporary difference is accrued product warranty costs that are expected to be paid as follows:
2016 $ 150,000
2017 $ 70,000
2018 $ 50,000
2019 $ 120,000
Truck has never had any operating losses (book or tax) and does not expect any in the future. There were no temporary differences in prior years. The enacted income tax rates are 30% for 2015, 25% for 2016 through 2019. How should the deferred income tax associated with accrued product warranty be recorded in Trucks December 31, 2015 balance sheet?
a. $97,500 Asset
b. $117,000 Asset
c. $97,500 Liability
d. $117,000 Liability
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