Determine the deferred tax assets or liabilities that will be reported on each company's December 31, 2023 SFP.
Understand the Problem
The question requires calculating the deferred tax assets or liabilities for two companies, Cullumber Corp. and Blossom Corp., based on their future taxable and deductible amounts related to temporary differences as of December 31, 2023. The approach involves applying the tax rates for the relevant years to the calculated taxable and deductible amounts, and then determining the net effect on deferred tax positions for both companies.
Answer
Calculate temporary differences by multiplying the differences between book and tax values of assets/liabilities by the tax rate.
To determine deferred tax assets or liabilities, calculate the temporary differences between book and tax values of assets and liabilities. Multiply these differences by the future tax rate. Report as an asset if it's deductible in the future, or a liability if it's taxable.
Answer for screen readers
To determine deferred tax assets or liabilities, calculate the temporary differences between book and tax values of assets and liabilities. Multiply these differences by the future tax rate. Report as an asset if it's deductible in the future, or a liability if it's taxable.
More Information
Deferred tax assets or liabilities represent future tax deductions or obligations that arise due to timing differences between when income and expenses are recognized under accounting rules versus tax rules.
Tips
A common mistake is confusing timing differences with permanent differences. Only timing differences create deferred tax assets or liabilities.
Sources
- Solved The following are two independent situations related - chegg.com
- Understanding Income Taxes: Calculating and Recording 2023 Taxes - coursehero.com
- Understanding Deferred Tax Liabilities and Expenses - coursesidekick.com
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