Solution-Classify the deferred taxes for balance sheet

Classify the deferred taxes for balance sheet

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Reference no: EM131008249

Molnar Corporation reported the following results for Year 1, its first year in business:

Taxable income (all taxable at 34%) . . . . . . . . . . . . . . $300,000
Accounting income (income before taxes). . . . . . . . . . $400,000

The difference between taxable income and accounting income resulted from the following:

	Income Statement	Income Tax Return
Depreciation	$100,000	$150,000
Profit on installment sales	135,000	55,000
Product warranty expense	30,000	-0-

REQUIRED:

1. Reconcile income before taxes to taxable income.

2. Prepare the journal entry to record the taxes for Year 1 assuming the following turnaround on temporary differences and a 34% tax rate for years 2-3 and 40% for years 4-5:

Taxable/(Deductible)	Years
	2	3	4	5
Depreciation	$15	$15	$20
Installment Sales Profit	25	25	30
Product Warranty				$(30)

3. Classify the deferred taxes for balance sheet purposes assuming installment sale receivables are classified as a current asset and product warranty is a long-term liability.

Reference no: EM131008249

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Classify the deferred taxes for balance sheet

Reference no: EM131008249

Reference no: EM131008249

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