Many companies have significant deferred taxes. Deferred taxes are not always long-term liabilities. For the categories below, state whether deferred taxes can arise in this category and provide an example.
i. Current liabilities
ii. Long-term liabilities
iii. Stockholders' equity
iv. Current assets
v. Long-term assets

Question

Quizplus · Accepted Answer

The Answer is i. Current liabilities
Could arise from recognizing all income from installment sale for financial reporting purposes, and on cash basis for tax purposes.

ii. Long-term liabilities
Different depreciation methods for tax and financial reporting purposes give rise to deferred taxes. Typically, assets are depreciated faster for tax purposes giving rise to a deferred tax liability.

iii. Stockholders' equity
Deferred taxes are recorded to offset the valuation account for marketable securities.

iv. Current assets
Warrantees, accrued compensation etc. where payment in cash is expected during next year will give rise to current deferred tax assets.

v. Long-term assets
Post-retirement health benefits and contingent liabilities not expected to be paid in cash within the next year will give rise to long-term deferred tax assets.

Many Companies Have Significant Deferred Taxes