Question

Candy Corp. leased a building and received the $80,000 annual rental payment on June 15, 2019. The beginning of the lease was July 1, 2019. Rental income is taxable when received. Candy’s tax rates are 25% for 2019 and 30% thereafter. Candy had no other permanent or temporary differences. Candy determined that no valuation allowance was needed. What amount of deferred tax asset should Candy report in its December 31, 2019, balance sheet?

Answer 1

$12,000

Step-by-step explanation:

Receipt of rent = $80,000

Candy’s tax rate = 25% for 2019

Candy’s tax rate = 30% thereafter

Candy had no other permanent or temporary differences

Amount of deferred tax asset should Candy report in its December 31, 2019, balance sheet:

Deferred Tax = Rent × 1/2 × 30%

= $80,000 × 1/2 × 30%

= $12,000