Question

Blossom Corporation recorded warranty accruals as at December 31, 2023, in the amount of $158,000. This reversing difference will cause deductible amounts of $50,900 in 2024,$41,500 in 2025, and $65,600 in 2026. Blossom's accounting income for 2023 is $146,000 and the tax rate is 25% for all years. There are no deferred tax accounts at the beginning of 2023 .

Answer 1

The question relates to the calculation of deferred taxes for Blossom Corporation, with a focus on warranty accruals that reverse over the subsequent years. the accrued liability will result in a deferred tax liability of $39,500 based on a 25% tax rate.

Step-by-step explanation:

The student's question pertains to the calculation of deferred taxes for Blossom Corporation, based on warranty accruals that will reverse in future periods. Given that Blossom Corporation recorded warranty accruals of $158,000 on December 31, 2023, and these will result in deductible amounts of $50,900 in 2024, $41,500 in 2025, and $65,600 in 2026. The accounting income for 2023 is $146,000, and the tax rate stands at 25%. With no deferred tax accounts existing at the start of 2023, the initial deferred tax liability can be computed by taking the warranty accrual of $158,000, multiplying by the tax rate of 25%, which gives a deferred tax liability of $39,500 to be recognized in the 2023 financial statements.