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10 December, 14:54

Headland Inc.'s only temporary difference at the beginning and end of 2019 is caused by a $3,150,000 deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2020 and 2021. The related deferred tax liability at the beginning of the year is $1,260,000. In the third quarter of 2019, a new tax rate of 20% is enacted into law and is scheduled to become effective for 2021. Taxable income for 2019 is $5,250,000, and taxable income is expected in all future years.

Determine the amount reported as a deferred tax liability at the end of 2019. Indicate proper classification (s)

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  1. 10 December, 16:41
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    The answer is given below;

    Explanation:

    Deferred Liability opening $1,260,000

    Deferred Liability as result of new tax rates $3,150,000*20% = ($630,000)

    Net difference deferred tax liability overstated $630,000

    Net Taxable income for the year $5,250,000

    Current Tax Expense (5,250,000*20%) $1,050,000

    Net deferred tax liability to be reported as at 2019 will be $630,000

    The additional amount booked will be reversed by;

    Deferred Tax liability Dr.$630,000

    Deferred Tax Expense Cr.$630,000

    Therefore current tax expense will be $1,050,000-$630,000=$420,000
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