Question

Taylor Company began manufacturing operations on January 2, 20X1. During 20X1 Taylor reported pre-tax book income of $150,000 and had taxable income of $200,000. Taylor had a temporary difference relating to accrued product warranty costs which are expected to be paid as follows: 20X2$30,00020X3$15,00020X4$5,000 The enacted tax rates are 21% for 20X1 and 20X2; and 25% for 20X3 and 20X4. The deferred tax asset at the end of 20X1 is:

Answer 1

To calculate the deferred tax asset at the end of 20X1 for Taylor Company, calculate the temporary difference relating to accrued product warranty costs and multiply it by the enacted tax rate for the year it is expected to reverse.

Step-by-step explanation:

To calculate the deferred tax asset at the end of 20X1, we need to determine the temporary difference relating to the accrued product warranty costs. Temporary difference is the difference between the tax basis and the carrying amount of an asset or liability that will result in taxable or deductible amounts in future years when the carrying amount of the asset or liability is recovered or settled.

In this case, the temporary difference is the amount of warranty costs that will be deductible for tax purposes in future years but has already been expensed for book purposes. So, the temporary difference is $50,000 ($30,000 + $15,000 + $5,000).

The deferred tax asset is calculated by multiplying the temporary difference by the enacted tax rate applicable in the year when the temporary difference is expected to reverse. In this case, for 20X2, the enacted tax rate is 21%, so the deferred tax asset at the end of 20X1 is $10,500 (21% of $50,000).

Answer 2

$11,300

Step-by-step explanation:

The computation of the deferred tax asset is shown below:

= 21%(20X2 Expense) + 25%(20X3 and 20X4 Expense)

= 21%($30,000) + 25%($15,000) + 25%($5,000)

= $6,300 + $3,750 + $1,250

= $11,300