Question

In 2018, Krause Company accrued, for financial statement reporting, estimated losses on disposal of unused plant facilities of $3,600,000. The facilities were sold in March 2019 and a $3,600,000 loss was recognized for tax purposes. Also in 2018, Krause paid $150,000 in premiums for a two-year life insurance policy in which the company was the beneficiary (Note: payment of premiums on a life insurance policy is a permanent difference. It is not recognized for tax purposes). Assuming that the enacted tax rate is 30% in both 2018 and 2019, and that Krause paid $1,170,000 in income taxes in 2018, the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2018, should be a

Answer 1

To determine the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2018, we calculate the temporary and permanent differences based on the given information. The net deferred income taxes at December 31, 2018, is $90,000.

Step-by-step explanation:

To determine the amount reported as net deferred income taxes on Krause's balance sheet at December 31, 2018, we need to calculate the temporary and permanent differences based on the given information.

The estimated losses on disposal of unused plant facilities of $3,600,000 is a temporary difference because it will reverse in the future. Since the enacted tax rate is 30% in both 2018 and 2019, the tax effect of this temporary difference is ($3,600,000 * 0.30) = $1,080,000.

The payment of premiums on the life insurance policy is a permanent difference because it is not recognized for tax purposes. Therefore, it doesn't have a tax effect.

The net deferred income taxes can be calculated by subtracting the tax effect of the temporary difference from the income taxes paid in 2018. So, the net deferred income taxes at December 31, 2018, would be ($1,170,000 - $1,080,000) = $90,000.

Answer 2

$1,080,000 asset

Step-by-step explanation:

Net deferred income taxes = Unused plant facilities disposed * Tax rate = $3,600,000 * 30% = $1,080,000 asset

Therefore, $1,080,000 should be reported as net deferred income taxes on Krause's balance sheet at December 31, 2018.