1) Suppose you have been hired as the consultant to counsel on how to show the tax differences between books and tax returns on balance sheet of ABC Company. There are some questionable items that the present controller Mary Sims is confused as to correct presentation. Timing differences are:
i) $1,5000,000 as the result of depreciation timing difference (books S-L versus MACRS tax return).
ii) There also was the bad debt reserve increase from previous year of $250,000.
ABC Company is the manufacturing company who accumulated $300,000 in warranty liability at year-end and couldn’t deduct it on tax return for this year but warranty will be paid out in following year. A lawsuit in amount of= $450,000 was accumulated on books at year-end awaiting final legal court judgment. Previous court cases have ruled that this $500,000 can be paid evenly over 3 years. You have to write the memo to Mary Sims advising her how to categorize these temporary tax differences on her books at year-end. In your memo provide FASB sources for her that authenticates your balance sheet presentation.