[goforCPA]

Hi All,

It is my understanding that installment sales used for FS reporting creates a Deferred tax liability sinece the FS income is larger than the Tax income. With this please see the below question where I am excluding the amount for Installment Sale because of the above mentioned reason but Becker is including. Csn anyone let me know why is installment sale in this instgance considered a deferred tax asset as oppose to a liability?

The Company’s enacted tax rate is 30% and below is the information provided for the FS and Tax basis for Year 1.

Year 1 book basis over/(under) tax basis for:

Warranty Libility ($20)

Deferred compensation liability ($15)

Installment sales $30

What amount should the company report as current deferred tax asset for Year 1?

The solution is -20-15+30 = -5 x 30% = 1.5

My answer was -20-15 = -35 x 30% = 10.5 because the installment sale is creating FS income over tax income which would mean that tax income is for later and therefore there is currently a future tax liability. Am I thinking this wrong?

October 2011-May 2013. Did not loose any credit!!
AUD - 73, 79
REG - 86
FAR - 72, 83
BEC - 80, last one, DONE!!

[Red315]

The warratny liability and deferred comp are under tax liabiltiy, which means they are a tax asset (tax income was greater than financial income). The installment sale resulted in Tax income being less than financial income (creating a liability). This results in:

-20-15+30 x .3 = 1.5

Deferred tax assets total 35 and deferred tax liability is 30. There is a net tax asset.

Jeanne Aparicio

B - 75 (11/2011, First Attempt)
A - 88 (2/2012, First Attempt)
R - 89 (5/2012, First Attempt)
F - 79 (8/31/2012 First Attempt)

I AM DONE!!!!!! BECKER IS AWESOME!!!!

Licensed Florida CPA 09/2012

[goforCPA]

Thank you, I forgot about the netting rule. Thought that you cannot net the liability and the asset but you can except for in cases they are current and non current, makes sense.

October 2011-May 2013. Did not loose any credit!!
AUD - 73, 79
REG - 86
FAR - 72, 83
BEC - 80, last one, DONE!!

[Author]

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