E 16–24 - DePaul Corporation - Balance sheet classification ● LO4 LO5 LO6 LO8
At December 31, DePaul Corporation had a $16 million balance in its
deferred tax asset account and a $68 million balance in its deferred tax
liability account. The balances were due to the following cumulative
temporary differences:
1. Estimated warranty
expense, $15 million: expense recorded in the year of the sale;
tax-deductible when paid (one-year warranty).
2. Depreciation expense, $120 million: straight-line in the income statement; MACRS on the tax return.
3. Income from
installment sales of properties, $50 million: income recorded in the
year of the sale; taxable when received equally over the next five
years.
4. Bad debt expense, $25 million: allowance method for accounting; direct write-off for tax purposes.
Required:
Show how any deferred tax amounts should be classified and reported in the December 31 balance sheet. The tax rate is 40%.
