(Three Differences, Classify Deferred Taxes) At December 31, 2012, Cascade Company had a net deferred tax liability of $450,000. An explanation of the items that compose this balance is as follows.
|
Temporary Differences |
Resulting Balances in Deferred Taxes |
|
1. Excess of tax depreciation over book depreciation |
$200,000 |
|
2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2013. The loss will be deducted on the tax return when paid. |
(50,000) |
|
3. Accrual method used for book purposes and installment sales method used for tax purposes for an isolated installment sale of an investment. |
300,000 |
|
$450,000 |
In analyzing the temporary differences, you find that $30,000 of the depreciation temporary difference will reverse in 2013, and $120,000 of the temporary difference due to the installment sale will reverse in 2013.The tax rate for all years is 40%.
Instructions
Indicate the manner in which deferred taxes should be presented on Cascade Company’s December 31, 2012, balance sheet.