Wright Co., organized on January 2, 2014, had pretax accounting income of $640,000 and taxable income of $2,080,000 for the year ended December 31, 2014 The only temporary difference is accrued product warranty costs which are expected to be paid as follows: $$\begin{array} { r r }
2015 & \$ 480,000 \
2016 & 240,000 \
2017 & 240,000 \
2018 & 480,000
\end{array}$$ The enacted income tax rates are 35% for 2014, 30% for 2015 through 2017, and 25% for 2018. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2014 balance sheet should be

Question

Wright Co., organized on January 2, 2014, had pretax accounting income of $640,000 and taxable income of $2,080,000 for the year ended December 31, 2014 The only temporary difference is accrued product warranty costs which are expected to be paid as follows: $$\begin{array} { r r } 
2015 & \$ 480,000 \
2016 & 240,000 \
2017 & 240,000 \
2018 & 480,000
\end{array}$$ The enacted income tax rates are 35% for 2014, 30% for 2015 through 2017, and 25% for 2018. If Wright expects taxable income in future years, the deferred tax asset in Wright's December 31, 2014 balance sheet should be

Quizplus · Accepted Answer

The deferred tax asset is calculated by multiplying the temporary differences by the enacted tax rates for the years they are expected to reverse: ($480,000 * 30%) + ($240,000 * 30%) + ($240,000 * 30%) + ($480,000 * 25%) = $144,000 + $72,000 + $72,000 + $120,000 = $408,000.

Wright Co, Organized on January 2, 2014, Had Pretax Accounting Income