Question

Problem 19-06

Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2020.

1. Carla Co. has developed the following schedule of future taxable and deductible amounts.

		2021		2022		2023		2024			2025
Taxable amounts		$200		$200		$200		$200			$200
Deductible amount		—		—		—		(1,900	)

2. Sarasota Co. has the following schedule of future taxable and deductible amounts.

		2021		2022		2023			2024
Taxable amounts		$200		$200		$200			$200
Deductible amount		—		—		(2,200	)		—

Both Carla Co. and Sarasota Co. have taxable income of $3,700 in 2020 and expect to have taxable income in all future years. The tax rates enacted as of the beginning of 2020 are 30% for 2020–2023 and 35% for years thereafter. All of the underlying temporary differences relate to noncurrent assets and liabilities.

1. Compute the net amount of deferred income taxes to be reported at the end of 2020, and indicate how it should be classified on the balance sheet for situation one.

Deferred income taxes to be reported at the end of 2020 in Carla Co.

$

Create partial balance sheet

2. Compute the net amount of deferred income taxes to be reported at the end of 2020, and indicate how it should be classified on the balance sheet for situation two.

Deferred income taxes to be reported at the end of 2020 in Sarasota co.

$

Create partial balance sheet

Answer 1

Part 1)

Temporary Difference	Future Taxable (Deductible Amounts)	Tax Rate	Deferred Tax
			(Asset)	Liability
2021	200	30%		60
2022	200	30%		60
2023	200	30%		60
2024	200	35%		70
2024	-1900	35%	-665
2025	200	35%		70
Total			-$665	$320

Deferred income taxes to be reported at the end of 2020 in carla Co. = $345 (665 - 320)

carla Company Balance Sheet
December 31, 2020
Other assets (noncurrent)
Deferred tax asset	$345

Part 2)

Temporary Difference	Future Taxable (Deductible Amounts)	Tax Rate	Deferred Tax
			(Asset)	Liability
2021	200	30%		60
2022	200	30%		60
2023	200	30%		60
2023	-2200	30%	-660
2024	200	35%		70
Total			-$660	$250

Deferred income taxes to be reported at the end of 2020 in Sarasota Co. = $410 (660-250)

Sarasota Company Balance Sheet
December 31, 2020
Other assets (noncurrent)
Deferred tax asset	$410