Wildhorse Co establishes a 102000000 liability at the end of

Wildhorse Co. establishes a $102,000,000 liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has $51,000,000 of temporary differences due to excess depreciation for tax purposes, $7,140,000 of which will reverse in 2018. The enacted tax rate for all years is 40%, and the company pays taxes of $65,280,000 on $163,200,000 of taxable income in 2017, Wildhorse expects to have taxable income in 2018 Determine the deferred taxes to be reported at the end of 2017 Deferred tax assets 40,800,000 Deferred tax liabilities 20,400,000 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Indicate how the deferred taxes computed above are to be reported on the balance sheet. Wildhorse Co. Balance Sheet December 31, 2017 Current Assets Deferred Tax Asset 42,400,000 SHOW LIST OF ACCOUNTS

Solution

Answer

1 ) deferred tax asset = 102000000 * 40 %

= 40800000

2 ) deferred tax liabilities = 51000000 * 40 %

= 20400000

3 ) balance sheet on the year end 31 dec 2017

current asset

deferred tax = 42400000

4 ) income statement for the year end 31 dec 2017

income before income taxes = (12680000 / 0.4) =31700000

income taxes

current tax = 65280000

deferred tax = (10200000+42400000)

= 52600000 = 12680000

net income = 19020000