Newer Shoes Company recorded book income of 110000 in 2014 I

Newer Shoes Company recorded book income of $110,000 in 2014. It does not have any permanent differences and the only temporary difference relates to a $45,000 installment sale that it recorded for book purposes. Newer Shoes anticipates colecting the installment sales equaly over the follow ng two years. The current enacted tax rate is 40%. The substantively enacted tax rates or the o ng three years are 42%, 45%, and 45%, respectively. what deferred tax amount should Newer Shoes record for this temporary difference under U.S. GAAP? The book basis of the installment salesreceivable from the installment sales is than the tax basis of the asset. The tax rate Newer Shoes Company will use to calculate the deferred tax amount is Therefore, Newer Shoes will record a defarred taxn the amount of $

Solution

The book basis of the installment sales receivable from the installment sales is less than the tax basis of the asset. The tax rate Newer Shoes Company will use to calculate the deferred tax amount is 40% Therefore, Newer Shoes will record a deferred tax liability in the amount of $36,000   (90000*40%)