Did anyone studying with Becker come across question CPA-00791, chapter F6 on current and non-current deferred tax liability and thought the explanation was a bit off? I don't understand why there is even a reference to the asset type classification in determining current/non-current deferred tax liability, when ALL deferred tax liability/assets are reported as non-current. What am I missing?
Thorn Co. applies Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. At the end of Year 1, the tax effects of temporary differences were as follows:
Deferred tax assets (liabilities)
Accelerated tax depreciation $ (75,000) – Noncurrent asset
Additional costs in inventory for tax purposes 25,000 – Current asset
Total ($50,000)
A valuation allowance was not considered necessary. Thorn anticipates that $10,000 of the deferred tax liability will reverse in Year 2. In Thorn's December 31, Year 1, balance sheet, what amount should Thorn report as noncurrent deferred tax liability under U.S. GAAP?
a.$40,000
b.$65,000
c.$50,000
d.$75,000
Explanation
Choice “d” is correct, $75,000 noncurrent deferred tax liability (based on classification of related asset as noncurrent).
AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD
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