Question

Sandhill Corporation has temporary differences at December 31, 2020, that result in the following deferred taxes.

Deferred tax liability related to depreciation difference $38,000
Deferred tax asset related to warranty liability 57,400
Deferred tax liability related to revenue recognition 93,600
Deferred tax asset related to litigation accruals 27,800

Indicate how these balances would be presented in Sandhill’s December 31, 2017, balance sheet.

Answer 1

Answer: Please refer to Explanation

Step-by-step explanation:

As per the US GAAP and IFRS, Deferred Tax Liabilities and Assets are not to be reported as Current Assets or Liabilities but rather as Non Current items.

Assets

Warranty Liability $57,400

Litigation Accruals $ 27,800

Total Deferred Tax Assets $85,200

Liabilities

Revenue Recognition $93,600

Depreciation $38,000

Total Deferred Tax Liabilities $131,600

Total Net Deferred Tax Liability $46,400

Total Net Deferred Tax Liability calculation

= $131,600 - $85,200

= $46,400

The above is how these balances would be presented in Sandhill’s December 31, 2020 balance sheet.