Question

wright co., organized on january 2, 2022, had pretax accounting income of $960,000 and taxable income of $3,120,000 for the year ended december 31, 2022. the only temporary difference is accrued product warranty costs which are expected to be paid as follows: 2023 $720,000 2024 360,000 2025 360,000 2026 720,000 the enacted income tax rates are 35% for 2022, 30% for 2023 through 2025, and 25% for 2026. if wright expects taxable income in future years, the deferred tax asset in wright's december 31, 2022 balance sheet should be

Answer 1

The deferred tax asset in Wright's December 31, 2022 balance sheet should be $612,000.

Step-by-step explanation:

The deferred tax asset in Wright's December 31, 2022 balance sheet should be calculated based on the temporary difference between accounting income and taxable income and the enacted income tax rates. In this case, the temporary difference is the accrued product warranty costs.

To calculate the deferred tax asset, we need to determine the tax deductible amount of the warranty costs in each future year based on the enacted income tax rates for those years. Then, we multiply the tax deductible amount by the applicable tax rate to calculate the deferred tax asset for each year. Finally, we sum up the deferred tax assets for all the future years and report it on Wright's December 31, 2022 balance sheet.

Here's how the deferred tax asset is calculated:

1. 2023: Tax deductible amount = $720,000 x 30% = $216,000
2. 2024: Tax deductible amount = $360,000 x 30% = $108,000
3. 2025: Tax deductible amount = $360,000 x 30% = $108,000
4. 2026: Tax deductible amount = $720,000 x 25% = $180,000
5. Deferred tax asset = $216,000 + $108,000 + $108,000 + $180,000 = $612,000

Therefore, the deferred tax asset in Wright's December 31, 2022 balance sheet should be $612,000.