P 16 2 Temporary difference; determine deferred tax amount for three years; balance sheet classification LO16 2, LO16 8 The difference between pretax accounting income and

P 16–2 Temporary difference; determine deferred tax amount for three years; balance sheet classification • LO16–2, LO16–8

The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for tax purposes in the year received, but reported in the income statement in later years when earned. The income tax rate is 40% each year. Times-Roman anticipates profitable operations in the future.

$ in 000s) 2013 2014 2015

  Pretax accounting income 250 240 230

  Taxable income 290 220 260

Required:

1. What is the balance sheet account for which a temporary difference is created by this situation?

2. For each year, indicate the cumulative amount of the temporary difference at year-end.

3. Determine the balance in the related deferred tax account at the end of each year. Is it a deferred tax asset or a deferred tax liability?

4. How should the deferred tax amount be classified and reported in the balance sheet?

Leave a Comment