Seagrams Corporation recorded a warranty expense for accounting purposes of $2,000 but only incurred $600 in actual warranty costs this year.If their tax rate is 40%, the difference in the expense and the costs incurred will create a:

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Quizplus · Accepted Answer

The difference of $1,400 ($2,000 - $600) creates a future tax asset because the company will be able to deduct this amount in the future, reducing future taxable income. The tax effect is $1,400 * 40% = $560.

Seagrams Corporation Recorded a Warranty Expense for Accounting Purposes of $2,000