For calendar 2020, its first year of operations, Snow Corp. reported pre-tax accounting income of $ 330,000 and taxable income of $ 600,000. The only reversible difference is accrued warranty costs, which are expected to be paid as follows: $$\begin{array} { l r }
2021 & \$ 90,000 \
2022 & 45,000 \
2023 & 45,000 \
2024 & 90,000
\end{array}$$ The enacted income tax rates are 35% for 2020, 30% for 2021, 2022 and 2023, and 25% for 2024. The deferred tax asset reported on Snow's December 31, 2020 SFP should be

Question

For calendar 2020, its first year of operations, Snow Corp. reported pre-tax accounting income of $ 330,000 and taxable income of $ 600,000. The only reversible difference is accrued warranty costs, which are expected to be paid as follows: $$\begin{array} { l r } 
2021 & \$ 90,000 \
2022 & 45,000 \
2023 & 45,000 \
2024 & 90,000
\end{array}$$ The enacted income tax rates are 35% for 2020, 30% for 2021, 2022 and 2023, and 25% for 2024. The deferred tax asset reported on Snow's December 31, 2020 SFP should be

Quizplus · Accepted Answer

The deferred tax asset is calculated based on the future tax rates applicable to the periods when the temporary differences reverse. The difference between pre-tax accounting income and taxable income is $270,000 ($600,000 - $330,000), which is due to accrued warranty costs. These costs will reverse in the future years as follows: $90,000 in 2021, $45,000 in 2022, $45,000 in 2023, and $90,000 in 2024. The tax rates for these years are 30% for 2021-2023 and 25% for 2024. Therefore, the deferred tax asset is calculated as:- $90,000 * 30% = $27,000 for 2021- $45,000 * 30% = $13,500 for 2022- $45,000 * 30% = $13,500 for 2023- $90,000 * 25% = $22,500 for 2024Adding these amounts gives a total deferred tax asset of $76,500.

For Calendar 2020, Its First Year of Operations, Snow Corp 2021$90,000202245,000202345,000202490,000\begin{array} { l r } 2021 & \$ 90,000 \\2022 & 45,000 \\2023 & 45,000 \\2024 & 90,000\end{array}2021202220232024​$90,00045,00045,00090,000​

For Calendar 2020, Its First Year of Operations, Snow Corp $\begin{array} { l r } 2021 & \$ 90,000 \\2022 & 45,000 \\2023 & 45,000 \\2024 & 90,000\end{array}$