Question

The Balance Sheet of SLB Co. shows an Accounts Receivable amount of $175k. Their marginal tax...

The Balance Sheet of SLB Co. shows an Accounts Receivable amount of $175k. Their marginal tax rate is 30%. There are no other items relating to timing differences and no uncertainties over future positive income. Based on this, their Balance Sheet should also show  Select one: a. a noncurrent DTA of $52,500 b. a current DTA of $52,500 c. a current DTL of $52,500 d. a noncurrent DTL of $52,500

Homework Answers

Answer #2

Differences in revenue recognition give rise to deferred tax liability.The company here with a 30% tax rate that sells , but receives payments from its customer at a future date and hence there is a balance in accounts receivable amounting to $175,000. For financial accounting purposes, the company recognizes the entire revenue at the time of the sale, while it records only $175,000 based on the installment method for tax purposes. This results in an $175,000 temporary difference that the company expects to liquidate in future. The company records $52,500 ($175,000 × 30%) in deferred tax liability on its financial statements under Non Current Assets.

Answer: d) a Non Current DTL of $52,500.

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