Question

At December 31, DePaul Corporation had a $22 million balance in its deferred tax asset account and a $170 million balance in its deferred tax liability account. The balances were due to the following cumulative temporary differences:

Estimated warranty expense, $25 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty).

Depreciation expense, $250 million: straight-line in the income statement; MACRS on the tax return.

Income from installment sales of properties, $175 million: income recorded in the year of the sale; taxable when received equally over the next five years.

Rent revenue collected in advance, $30 million; 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 40%.
Determine the deferred tax amounts to be reported in the December 31 balance sheet. The tax rate is 40%. (Enter your answers in millions.)

Answer 1

a)			($ in millions)
Related Balance Sheet Account	Classification Current (C) and Non Current (NC)	Future Taxable (Deductible Amount)	Tax Rate	Deferred tax (asset) Liability
				Current	Non Current
Liability – warranty expense	C	-$25.00	x 40%	-$10.00
Depreciable assets	NC	$250.00	x 40%		$100.00
Receivable – installment sales ($175/5)	C	$35.00	x 40%	$14.00
Receivable – installment sales ($175 - $35)	NC	$140.00	x 40%		$56.00
Unearned rent revenue	C	-$30.00	x 40%	-$12.00
Net currentliability (asset)				-$8.00
Net noncurrentliability (asset)					$156.00
b)
Current Assets:
Deferred tax asset	$8.00
Long-Term Liabilities:
Deferred tax liability	$156.00