Temporary difference; determine deferred tax amount for three years; balance sheet classification
Response to the following problem:
Times-Roman Publishing Company reports the following amounts in its first three years of operation:
|
($ in 000s)
|
2016
|
2017
|
2018
|
|
Pretax accounting income
|
$250
|
$240
|
$230
|
|
Taxable income
|
290
|
220
|
260
|
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 earned. The income tax rate is 40% each year. Times-Roman anticipates profitable operations in the future.
Required:
1. What is the balance sheet account for which a temporary difference is created by this situation?
2. For each year, indicate the cumulative amount of the temporary difference at year-end.
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?
4. How should the deferred tax amount be classified and reported in the balance sheet?