Question

Rikart Real estate has a $2,000,000 installment accounts receivable. Rikart recognizes income for tax purposes when cash is collected, and pays tax at a rate of 35%. Rikart's balance sheet should include a deferred tax liability of:

a. $2,000,000
b. $700,000
c. $$0
d. Insufficient information to answer

Answer 1

Rikart Real Estate should include a deferred tax liability of $700,000 on its balance sheet, which is 35% of the $2,000,000 installment accounts receivable.

Step-by-step explanation:

The student asked about the deferred tax liability that should be included on Rikart Real Estate's balance sheet. Rikart Real Estate has an installment accounts receivable of $2,000,000 and recognizes income for tax purposes when cash is collected. Since they pay taxes at a rate of 35% the deferred tax liability would be 35% of the $2,000,000, which equals $700,000. Therefore, the balance sheet would include a deferred tax liability of $700,000.