Question

Mill Company began operations on January 1, 20X1, and recognized income from construction-type contracts under different methods for tax purposes and financial reporting purposes. Information concerning income recognition under each method is as follows: Year Tax Purposes Book Purposes 20X1 $ 400,000 $ 0 20X2 625,000 375,000 20X3 750,000 850,000 Required: Assume the income tax rate is 21% in all years and that Mill has no other temporary differences. In its December 31, 20X3, balance sheet, what amount of deferred income taxes should Mill report

Answer 1

Deferred tax asset balance on December 31, 20X3 = $115,500

Step-by-step explanation:

The computation of the amount of deferred income taxes should Mill report is shown below:

Year Tax purpose Book purpose Difference Deferred tax book

20X1 $400,000 $0 $400,000 $84,000

20X2 $625,000 $375,000 $250,000 $52,500

20X3 $750,000 $850,000 ($100,000) ($21,000)

Deferred tax asset balance on December 31, 20X3 = $115,500