The following information applies to the operations of MK Inc. for 2018 and 2019. Assume a tax rate of 30% for both years.

2018 information:
Sales on account in the amount of $700,000
Warranty expense and associated liability in the amount of $130,000
No other expenses incurred.

2019 information:
Sales on account in the amount of $230,000
Warranty repairs made in the amount of $61,000
No expenses incurred.

What is the amount of MK's deferred tax asset or deferred tax liability for 2018?

Question

The following information applies to the operations of MK Inc. for 2018 and 2019. Assume a tax rate of 30% for both years.

2018 information:
Sales on account in the amount of $700,000
Warranty expense and associated liability in the amount of $130,000
No other expenses incurred.

2019 information:
Sales on account in the amount of $230,000
Warranty repairs made in the amount of $61,000
No expenses incurred.

What is the amount of MK's deferred tax asset or deferred tax liability for 2018?

Quizplus · Accepted Answer

The deferred tax asset for 2018 is calculated based on the warranty expense that has been recognized but not yet paid. The warranty expense is $130,000, and with a tax rate of 30%, the deferred tax asset is $130,000 * 30% = $39,000.

The Following Information Applies to the Operations of MK Inc