Question

Edward McDowell Co. establishes a $138,000,000 liability at the end of 2020 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2021. Also, at the end of 2020, the company has $69,000,000 of temporary differences due to excess depreciation for tax purposes, $9,660,000 of which will reverse in 2021. The enacted tax rate for all years is 20%, and the company pays taxes of $44,160,000 on $220,800,000 of taxable income in 2020. McDowell expects to have taxable income in 2021.

Determine the deferred taxes to be reported at the end of 2020.

Answer 1

The answer is given below;

Step-by-step explanation:

Site-cleanup costs $138,000,000

This will give rise to deferred tax asset of $138,000,000*20%=$27,600,000

Tax Depreciation excessive for the year=$9,660,000

Excess tax depreciation deducted in current year will give rise to deferred tax liability=$9,660,000*20%=$1,932,000

Current Tax Expense =$44,160,000

Deferred Tax During 2020 are;

Deferred Tax Asset $9,660,000

Deferred Tax Liability $1,932,000

Current Tax Expense $44,160,000