Macintyre Inc. sells household furniture on an instalment basis. Customers make payments in equal monthly instalments over a two-year period, with no down payment required. Macintyre's gross profit on instalment sales is 40% of the selling price.
For book purposes, sales revenue is recognized at the time the sale is made. For income tax purposes, however, the instalment method is used. There are no other accounting and income tax accounting differences, and Macintyre's income tax rate is 30%.
If Macintyre's December 31, 2017, statement of financial position includes a deferred tax liability of $90,000 arising from the difference between accounting and tax treatment of the instalment sales, it should also include instalment accounts receivable of

Question

Quizplus · Accepted Answer

The deferred tax liability of $90,000 is due to the difference in timing of revenue recognition for book and tax purposes. The deferred tax liability is calculated as the temporary difference multiplied by the tax rate (30%). Therefore, the temporary difference is $90,000 / 0.30 = $300,000. Since the gross profit is 40% of the selling price, the instalment accounts receivable is $300,000 / 0.40 = $750,000.