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Stephens Company has a deductible temporary difference of $2,000,000 at the end of its first year...

Stephens Company has a deductible temporary difference of $2,000,000 at the end of its first year of operations. Its tax rate is 40 percent. Stephens has $1,800,000 of income taxes payable. After a careful review of all available evidence, Stephens determines that it is probable that it will not realize $200,000 of this deferred tax asset. On Stephens Company’s statement of financial position at the end of its first year of operations, what is the amount of deferred tax asset?

a.   $2,000,000

b.   $1,800,000

c.   $800,000

d.   $720,000

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Expert Solution

Answer: The amount of deferred tax would be calculated as follows:
Temporary difference at the end of first year of operation                                                20,00,000.00
Less: Temporary difference not realised                                                  2,00,000.00
Temporary difference at the end of first year of operation that can be realised                                                18,00,000.00
Tax Rate 40%
Deferred tax asset                                                  7,20,000.00 (1,800,000*40%)

ekkarill92 answered 1 year ago
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