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Norman, Inc. appropriately uses the asset-liability method to record deferred income taxes. Norman reports depreciation expense...

Norman, Inc. appropriately uses the asset-liability method to record deferred income taxes. Norman reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year.

In addition, Norman received rent revenues in advance this year. These revenues are included in this year's taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability.

Initial Post
How would Norman account for the temporary differences?

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Expert Solution

Norman account for the temporary differences with the below mentioned:

1) Computation of the amount and identification of the types of existing temporary differences. The depreciation policies often lead to a temporary difference that will result in net future taxable amounts because depreciation for tax purposes is higher than the depreciation for financial statements. The collection of rent revenue in advance may result to future deductible amounts because rents are taxed in the year they are received however reported on the income statement in the year earned.

2) With the usage of the enacted marginal tax rate measuring the total deferred tax asset for the deductible temporary difference.

3) With the usage of the enacted marginal tax rate measuring the total deferred tax liability for the deductible temporary difference.

4) With the usage of the valuation allowance reducing the deferred tax asset, if based on the weight of available evidence, it is more likely than not that certain portion or all of the deferred tax asset will not be realized.

ekkarill92 answered 1 year ago
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