Question

During 2023, accounting income included an estimated loss of $38 million from having accrued a loss contingency. The loss was paid in 2024, at which time it is tax deductible. At January 1, 2024, Arndt had a deferred tax asset of $20 million and no deferred tax liability. Compute the deferred tax amounts that should be reported on the 2024 balance sheet.

Answer 1

To calculate the deferred tax amounts on the 2024 balance sheet, subtract the deferred tax asset from the tax-deductible loss. Therefore, the deferred tax liability would be $18 million.

Step-by-step explanation:

To calculate the deferred tax amounts that should be reported on the 2024 balance sheet, we need to consider the tax-deductible loss of $38 million.

Since the loss was accrued in 2023 and paid in 2024, it is tax-deductible in 2024. This means that the company can offset the loss against its taxable income and reduce its tax liability for 2024.

Given that Arndt has a deferred tax asset of $20 million at January 1, 2024, we can subtract this amount from the tax-deductible loss to get the deferred tax liability that should be reported. Therefore, the deferred tax liability on the 2024 balance sheet would be $38 million - $20 million = $18 million.