Question

On June 30, 20X4, Ank Corp. pre-paid a $19,000 premium on an annual insurance policy. The premium payment was a tax-deductible expense in Ank's 20X4 cash-basis tax return. The accrual-basis income statement will report a $9,500 insurance expense in 20X4 and 20X5. Ank elected early application of FASB Statement No. 109, Accounting for Income Taxes. Ank's income tax rate is 30% in 20X4 and 25% thereafter. In Ank's December 31, 20X4 balance sheet, what amount related to the insurance should be reported as a deferred income tax liability

Answer 1

In Ank Corp's December 31, 20X4 balance sheet, $4,750 should be reported as a deferred income tax liability related to insurance.

Step-by-step explanation:

In Ank Corp's December 31, 20X4 balance sheet, the amount related to insurance that should be reported as a deferred income tax liability is $4,750. This is calculated by taking the tax rate of 30% in 20X4 and applying it to the difference between the tax-deductible expense of $19,000 and the accrual-basis insurance expense of $9,500. This deferred income tax liability is reported in the balance sheet to account for the difference in timing between when the expense is recognized for tax purposes and when it is recognized for financial reporting purposes.

Learn more about Deferred income tax liability here:

Answer 2

$2,375

Step-by-step explanation:

Calculation to determine what amount related to the insurance should be reported as a deferred income tax liability

Using this formula

Deferred income tax liability=Accrual-basis income statement* Tax rate

Let plug in the formula

Deferred income tax liability=$9,500*25%

Deferred income tax liability = $2,375

Therefore The amount that is related to the insurance that should be reported as a deferred income tax liability is $2,375