Concourse Corporation paid $20,000 in January of 2014 for premiums on a two- year life insurance policy which names the company as the beneficiary.Additionally,Concourse Corporation's financial statements for the year ended December 31,2014,revealed the company paid $105,000 in taxes during the year and also accrued estimated litigation losses of $200,000.Assuming the lawsuit was resolved in February of 2015 (at which time a $200,000 loss was recognized for tax purposes)and that Concourse's tax rate is 30 percent for both 2014 and 2015,what amount should Concourse report as asset for net deferred income taxes on its 2014 balance sheet?

Question

Quizplus · Accepted Answer

To determine the net deferred income taxes asset, we need to calculate the deferred tax liability for the tax expense that has been accrued but not recognized on the income statement. The deferred tax liability is calculated as follows:

Accrued Litigation Losses: $200,000
Tax Rate: 30%
Deferred Tax Liability: $60,000

Next, we need to subtract the deferred tax liability from the deferred tax asset, which is created by the prepaid insurance premiums. The deferred tax asset is calculated as follows:

Prepaid Insurance Premiums: $20,000
Tax Rate: 30%
Deferred Tax Asset: $6,000

Net Deferred Income Taxes Asset: $6,000 - $60,000 = -$54,000

However, since we are looking for the deferred tax asset rather than liability, we need to flip the signs:

Net Deferred Income Taxes Asset: $60,000 - $6,000 = $54,000

Therefore, the answer is C.

Concourse Corporation Paid $20,000 in January of 2014 for Premiums