Question

1. Summer Co. is preparing the reconciliation between accounting income and taxable income for 2019.  
2. Actual warranty repairs made in 2019 and allowed to be deducted for tax purposes amounted to $40,000. Warranty expense recorded in 2019 was $30,000.
3. For years before 2019, warranty expense recorded was $60,000 and total repairs made under warranty amounted to $10,000.
4. CCA allowed for tax purposes in 2019 was $65,000; depreciation expense recorded in 2019 was $85,000.
5. For years before 2019, depreciation expense exceeded CCA by $70,000.
6. The rate for all years is 30%

QUESTION

How much is the total deferred tax expense for 2019?

Select one:

a. $3,000 debit

b. $3,000 credit

c. $9,000 credit

d. $9,000 debit

e. none of the above

1. Summer Co. is preparing the reconciliation between accounting income and taxable income for 2019.  
2. Actual warranty repairs made in 2019 and allowed to be deducted for tax purposes amounted to $40,000. Warranty expense recorded in 2019 was $30,000.
3. For years before 2019, warranty expense recorded was $60,000 and total repairs made under warranty amounted to $10,000.
4. CCA allowed for tax purposes in 2019 was $65,000; depreciation expense recorded in 2019 was $85,000.
5. For years before 2019, depreciation expense exceeded CCA by $70,000.
6. The rate for all years is 30%

QUESTION

How much is the total deferred tax amount on the December 31, 2019 balance sheet?

Select one:

a. $15,000 asset

b. $15,000 liability

c. $39,000 asset

d. $39,000 liability

e. none of the above

Answer 1

1		Financial amount (A)	Tax base (B)	Difference base(A-B)	Deferred Tax	Asset/ Liability
	Warranty expenses	30000	40000	-10000	-3000	Liability
	CCA	85000	65000	20000	6000	Asset
	Total			10000	3000	Asset
	As expenses claimed for the purpose of taxable income are less it will create deferred tax asset.
	Deferred tax expense	10000*30%	Credit
	( to create asset)	3000	Credit
2	before 2019	Financial amount (A)	Tax base (B)	Difference base(A-B)	Deferred Tax	Asset/ Liability
	Warranty expenses	60000	10000	50000	15000	Asset
	CCA/ Depreciation			70000	21000	Asset
					36000	Asset
		Before 2019	36000	deferred tax asset
		For, 2019	3000	deferred tax asset
			39000	Asset
	If you have any doubt regarding any calculation please leave a comment.