KER commenced operations in 2013.The company has recorded an accrual for warranty in its books during the year ended December 31, 2014 amounting to $100,000.During the year 2014, customers required service from goods sold in 2013 amounting to $60,000.No similar expenditures were made during 2013.KER accrued warranty expenses totalling $100,000 for 2013 and 2014.As a result of the information above, what is the amount of deferred taxes that will appear on the 2014 statement of financial position? Assume a 20% tax rate for both years.

Question

Quizplus · Accepted Answer

The deferred tax asset arises because the warranty expense recognized in the financial statements ($100,000) exceeds the tax-deductible expense ($60,000) in 2014. The difference of $40,000, taxed at 20%, results in a deferred tax asset of $8,000.

KER Commenced Operations in 2013