Question

Times-Roman Publishing Company reports the following amounts in its first three years of operation:

($ in thousands)	2021			2022			2023
Pretax accounting income	$	350		$	320		$	320
Taxable income		390			340			360

  
The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for tax purposes in the year received, but reported in the income statement in later years when the performance obligation is satisfied. The income tax rate is 25% each year. Times-Roman anticipates profitable operations in the future.
  
Required:
1. What is the balance sheet account that gives rise to a temporary difference in this situation?
2. For each year, indicate the cumulative amount of the temporary difference at year-end. (Enter your answers in thousands.)
3. Determine the balance in the related deferred tax account at the end of each year. Is it a deferred tax asset or a deferred tax liability? (Enter your answers in thousands rounded to 1 decimal place.)

Answer 1

Solution 1:

Balance sheet account that gives rise to a temporary difference in this situation is "Unearned subscription revenue"

Solution 2 & 3:

Computation of Cumulative Temporary difference and deferred tax assets
Particulars	2021	2022	2023
Pretax accounting income	$350.00	$320.00	$320.00
Taxable income	$390.00	$340.00	$360.00
Temporary difference for the year	$40.00	$20.00	$40.00
Cumulative temporary difference for the year	$40.00	$60.00	$100.00
Deferred tax assets at the end of each year	$10.00	$15.00	$25.00