Taylor Company began manufacturing operations on January 2, 2015. During 2015 Taylor earned pre-tax book income of $150,000 and had taxable income of $200,000. Taylor had a temporary difference relating to accrued product warranty costs that are expected to be paid as follows:
$$\begin{array} { l r }
2016 & \$ 30,000 \
2017 & \$ 15,000 \
2018 & \$ 5,000
\end{array}$$
-The enacted tax rates are 30% for 2015 and 2016;and 40% for 2017 and 2018.The deferred tax asset at the end of 2015 is

Question

Taylor Company began manufacturing operations on January 2, 2015. During 2015 Taylor earned pre-tax book income of $150,000 and had taxable income of $200,000. Taylor had a temporary difference relating to accrued product warranty costs that are expected to be paid as follows:
$$\begin{array} { l r } 
2016 & \$ 30,000 \
2017 & \$ 15,000 \
2018 & \$ 5,000
\end{array}$$
-The enacted tax rates are 30% for 2015 and 2016;and 40% for 2017 and 2018.The deferred tax asset at the end of 2015 is

Quizplus · Accepted Answer

The deferred tax asset at the end of 2015 is calculated based on the future tax effects of the temporary differences due to the accrued product warranty costs that will be paid in the future years. The temporary difference is the difference between the book income and taxable income due to the warranty costs that are recognized for financial reporting purposes but not for tax purposes until they are paid. The future payments are $30,000 in 2016, $15,000 in 2017, and $5,000 in 2018. The tax rates are 30% for 2015 and 2016, and 40% for 2017 and 2018. Therefore, the deferred tax asset is calculated as follows:- For 2016: $30,000 * 30% = $9,000- For 2017: $15,000 * 40% = $6,000- For 2018: $5,000 * 40% = $2,000Adding these amounts gives the total deferred tax asset: $9,000 + $6,000 + $2,000 = $17,000.

Taylor Company Began Manufacturing Operations on January 2, 2015 2016$30,0002017$15,0002018$5,000\begin{array} { l r } 2016 & \$ 30,000 \\2017 & \$ 15,000 \\2018 & \$ 5,000\end{array}201620172018​$30,000$15,000$5,000​

Taylor Company Began Manufacturing Operations on January 2, 2015 $\begin{array} { l r } 2016 & \$ 30,000 \\2017 & \$ 15,000 \\2018 & \$ 5,000\end{array}$