Cumulative temporary differences
Course:- Accounting Basics
Reference No.:- EM13130413

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At December 31, 2006, 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 on 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.


Show how any deferred tax amounts should be classified and reported on the 2006 balance sheet. The tax rate is 40%.

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