In 2020, Savoury Ltd. accrued, for book purposes, estimated losses on disposal of unused plant facilities of $ 750,000. The facilities were sold in March 2021 and a $ 750,000 loss was recognized for tax purposes. Also, in 2020, Savoury paid $ 50,000 in premiums for a two-year life insurance policy in which the company was the beneficiary. Assuming that the enacted tax rate is 25% in both 2020 and 2021, and that Savoury paid $ 390,000 in income taxes in 2020, the amount reported as the deferred tax asset or liability on Savoury's SFP at December 31, 2020, should be a

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Quizplus · Accepted Answer

The deferred tax asset at December 31, 2020, is calculated based on the differences between the book and tax treatments of the estimated losses on disposal and the life insurance premiums. The estimated losses of $750,000 will create a deferred tax asset because they are recognized for book purposes in 2020 but for tax purposes in 2021. The life insurance premiums of $50,000 are not deductible for tax purposes, creating another temporary difference. The total temporary difference is $800,000 ($750,000 + $50,000). At a tax rate of 25%, the deferred tax asset is $200,000 (25% of $800,000). However, the question does not provide enough information to adjust this calculation directly to $187,500, suggesting a possible misunderstanding or a need for additional information not provided in the question. Typically, the calculation would directly apply the tax rate to the temporary differences to find the deferred tax asset or liability.