Question

Bourne Company received rent in advance of $9,000 on December 31, 2016, which was taxable when received for income tax purposes. The company's effective tax rate was 30%, and this was the only temporary difference. Which of the following should be reported on the December 31, 2016 balance sheet?

a. $2,700 as a current deferred tax asset
b. $9,000 as a current deferred tax liability
c. $2,700 as a current deferred tax liability
d. $9,000 as a current deferred tax asset

Answer 1

Ans : c : $2,700 Deffered Tax Liability

Since, it was required to pay tax on rent received on Cash Basis and Not on Accrual Basis, Rent Received in Advance should be considered as the income of year in which it is received for Taxation Purpose. Now, 9,000 received in Current Year and Tax Rate is 30%.

Net Tax Liability = $9,000 x 30% = $2,700

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