Question

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

($ in thousands)	2021			2022			2023
Subscription revenue recognized (earned)	$	380		$	380		$	340
Subscription payments received in cash		420			360			380

  
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. Determine the amount of deferred subscription revenue at the end of each year. (Enter all amounts as positive values.)
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 all amounts as positive values.)
  

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 Deferred subscription revenue ($ in thousands)
Particulars	2021	2022	2023
Beginning deferred subscription revenue	$0.00	$40.00	$20.00
Subscription payments received in cash	$420.00	$360.00	$380.00
Less: Subscription revenue recognized	$380.00	$380.00	$340.00
Ending Deferred subscription revenue	$40.00	$20.00	$60.00
Deferred tax asset at the end of each year	$10.00	$5.00	$15.00