Tate, Inc. owns 80 percent of Jeffrey, Inc. During the current year, Jeffrey sold merchandise costing $60,000 to Tate for $75,000. At the end of the year, 10 percent of this merchandise was still being held. The tax rate is 30 percent.
Assuming that separate income tax returns are being filed, what deferred income tax asset is created?

Question

Quizplus · Accepted Answer

The deferred income tax asset is calculated on the unrealized profit in the ending inventory. The unrealized profit is 10% of the $15,000 profit ($75,000 - $60,000), which is $1,500. The tax rate is 30%, so the deferred tax asset is $1,500 * 30% = $450.

Tate, Inc Owns 80 Percent of Jeffrey, Inc