Nevitt Co., organized on January 2, 2007, had pretax accounting income of $880,000 and taxable income of $1,600,000 for the year ended December 31, 2007. The only temporary difference is accrued product warranty costs which are expected to be paid as follows: The enacted income tax rates are 35% for 2007, 30% for 2008 through 2010, and 25% for 2011. If Nevitt expects taxable income in future years, the deferred tax asset in Nevitt's December 31, 2007 balance sheet should be

Question

Nevitt Co., organized on January 2, 2007, had pretax accounting income of $880,000 and taxable income of $1,600,000 for the year ended December 31, 2007. The only temporary difference is accrued product warranty costs which are expected to be paid as follows:  The enacted income tax rates are 35% for 2007, 30% for 2008 through 2010, and 25% for 2011. If Nevitt expects taxable income in future years, the deferred tax asset in Nevitt's December 31, 2007 balance sheet should be

Quizplus · Accepted Answer

($240,000 + $120,000 + $120,000) × 30% = $144,000; $240,000 × 25% = $60,000; $144,000 + $60,000 = $204,000.

Nevitt Co, Organized on January 2, 2007, Had Pretax Accounting Income