Question

At December 31, DePaul Corporation had the following cumulative temporary differences associated with its operations:_____.

1. Estimated warranty expense, $40 million temporary difference: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty).
2. Depreciation expense, $120 million temporary difference: straight-line in the income statement; MACRS on the tax return.
3. Income from installment sales of properties, $60 million temporary difference: income recorded in the year of the sale; taxable when received equally over the next five years.
4. Rent revenue collected in advance, $40 million temporary difference; taxable in the year collected; recorded as income when the performance obligation is satisfied in the following year.
Required: Assuming DePaul will show a single noncurrent net amount in its December 31 balance sheet, indicate that amount and whether it is a net deferred tax asset or liability. The tax rate is 25%. (Enter your answer In millions (I.e., 10,000,000 should be entered as 10).)
_______ million

Answer 1

Answer and Explanation:

The computation is shown below:

Net deferred tax liability is

= (Taxable temporary differences - Deductible temporary differences) × Tax rate

= ($120 million + $60 million - $40 milllion - $40 million) × 25%

= $25 million

Hence, it shows the net deferred tax liability of $25 million and the same is to be considered