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?

Solutions

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

Next > < Previous

Related Solutions

CA19-3 (Identify Temporary Differences and Classification Criteria) The asset-liability approach for recording deferred income taxes is...

CA19-3 (Identify Temporary Differences and Classification Criteria) The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles. Instructions (a)Indicate whether each of the following independent situations should be treated as a temporary difference or as a permanent difference, and explain why. (1)Estimated warranty costs (covering a 3-year warranty) are expensed for financial reporting purposes at the time of sale but deducted for income tax purposes when paid. (2)Depreciation for book and income tax...

Custom Designs, Inc. uses the allowance method to estimate and record bad debt expense. It has...

Custom Designs, Inc. uses the allowance method to estimate and record bad debt expense. It has an accounts receivable balance of $90,000 and an allowance for uncollectible accounts credit balance of $6,200. Suppose an account receivable balance of $1,200 from one customer is determined to be uncollectible and is written off. What was the net accounts receivable amount before and after the write off? On January 1, 20X1, Mechanical Engineers, Inc. had an accounts receivable balance of $506,000 and a...

1 - The journal entry a company uses to record the estimated product warranty liability expense...

1 - The journal entry a company uses to record the estimated product warranty liability expense is A. debit Product Warranty Expense; credit Product Warranty Payable B. debit Product Warranty Payable; credit Cash C. debit Product Warranty Payable; credit Product Warranty Expense D. debit Product Warranty Expense; credit Cash 2- Quick assets include A. cash, cash equivalents, receivables, and inventory B. cash, cash equivalents, receivables, prepaid expenses, and inventory C. cash, cash equivalents, and receivables D. cash, cash equivalents, receivables,...

The Yellow Corporation reports a deferred income tax liability of $732,000 in its December 31, Year...

The Yellow Corporation reports a deferred income tax liability of $732,000 in its December 31, Year One, balance sheet. a. Why are differences created between a company’s reported net income and the taxable income figure shown on its income tax return? b. What is meant by the term “temporary tax difference”? c. In general, what is the meaning of a deferred income tax liability? d. In analyzing a company, liabilities are generally viewed as a negative. Why do company officials...

The Yellow Corporation reports a deferred income tax liability of $732,000 in its December 31, Year...

Sheridan Company uses the percentage of sales method to record bad debt expense. It estimates that...

Sheridan Company uses the percentage of sales method to record bad debt expense. It estimates that 2% of net credit sales (all made on account) will become uncollectible. Sheridan Company reported the following information in its general ledger for the year ended September 30, 2021: Sales Debit Credit 954,000 Accounts Receivable Debit Credit 257,000 Allowance for Doubtful Accounts Debit Credit 2,000 1) Prepare the adjusting entry to record bad debt expense at year end. 2) Calculate the carrying amount of...

RoofCo reports total book income before taxes of $20 million and a total tax expense of...

RoofCo reports total book income before taxes of $20 million and a total tax expense of $8 million. FloorCo reports book income before taxes of $30 million and a total tax expense of $12 million. The companies’ breakdown between current and deferred tax expense (benefit) is as follows. Decision Making Communications RoofCo FloorCo Current tax expense $10.0 $13.0 Deferred tax benefit (2.0) (1.0) Total tax expense $8.0 $12.0 RoofCo’s deferred tax benefit is from a deferred tax asset...

Solve for the missing numbers. Revenue 17,656, Depreciation 3,838, Deferred Tax Liability, Non-Current 2,413, Operating Income...

Solve for the missing numbers. Revenue 17,656, Depreciation 3,838, Deferred Tax Liability, Non-Current 2,413, Operating Income 2,257, Total Liabilities And Equity 75,611, Earnings before Taxes 776, Total Liabilities 52,120, Net Profit 1,389, Inventory 128, Other Current Assets 401, Prepaid Expenses 294, Additional Paid In Capital 23,314, Long-term Investments 453, Gross Profit 10,003, Goodwill 30,475, Gross Property, Plant & Equipment 51,204, Total Current Assets 3,891, Accumulated Depreciation (24,352), Common Stock 1,069, Other Long-Term Assets 1,167, Accounts Payable 1,555, Other Operating Expense...

Tax Drill - Deferred Tax Asset Ion Corporation has income tax expense/payable for book purposes of...

Tax Drill - Deferred Tax Asset Ion Corporation has income tax expense/payable for book purposes of $200,000 and $250,000 for tax purposes. Assume that Ion will only be able to use $30,000 of any deferred tax asset with the balance expiring. As a result, Ion will record a deferred tax asset of $ 50 (incorrect) and a valuation allowance of $ 20 (incorrect) . ???

Problem 21-8 Cash flows from operating activities (direct method and indirect method)-deferred income tax liability and...

Problem 21-8 Cash flows from operating activities (direct method and indirect method)-deferred income tax liability and amortization of bond discount [LO21-3, 21-4] Portions of the financial statements for Parnell Company are provided below. PARNELL COMPANY Income Statement For the Year Ended December 31, 2018 ($ in 000s) Revenues and gains: Sales $ 750 Gain on sale of buildings 11 $ 761 Expenses and loss: Cost of goods sold $ 275 Salaries 115 Insurance 35 Depreciation 118 Interest expense 45 Loss...

Subjects