Question

Isaac Inc. began operations in January 2021. For some property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments.

In 2021, Isaac had $653 million in sales of this type. Scheduled collections for these sales are as follows:

2021 $70 million
2022 128 million
2023 126 million
2024 156 million
2025 173 million
$653 million

Assume that Isaac has a 25% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2022 what deferred tax liability would Isaac report in its year-end 2022 balance sheet?

Answer 1

$146 million

Step-by-step explanation:

Calculation for the deferred tax liability that Isaac would report

Using this formula

Deferred tax liability=Total future taxable income × Tax rate

Let plug in the formula

Deferred tax liability=($653 million- $70 million) *25%

Deferred tax liability=$583 million *25%

Deferred tax liability=$145.75 million approximately $146 million

Therefore the deferred tax liability that Isaac would report will be $146 million