Question

Note, the following information about Tyme Magazine is the same as in the previous question.

It is January 1, 2017. Tyme Magazine generated cash revenue from magazine subscriptions in the following amounts – year 1: $500m, year 2: $400m, year 3: $300m, and reported these annual amounts to the IRS. However, because some of that revenue was from customers who prepaid, in accordance with GAAP, Tyme had to recognize revenue based on when the revenue was earned – specifically $400m each year.

Tyme generated $50m in cash expenses each year (recognized identically for book and tax purposes). In addition, Tyme faces a 40% tax rate.

Which of the following statements is most accurate?

A Tyme’s deferred revenues will increase by $40 million in 2017.

B Tyme’s deferred revenues will increase by $100 million in 2017.

C Tyme’s deferred tax liabilities will decrease by $40 million in 2017.

D Tyme’s deferred tax assets will increase by $100 million in 2017.

E Tyme’s deferred tax assets will increase by $40 million in 2019.

Answer 1

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