Computation of Deferred Taxes
Let’s look at a simple deferred tax problem now!
- Information: Vase Company had an installment sale with gross profit of $240,000.
- For financial statement (book) purposes the gross profit was reported entirely in year 1.
- For tax purposes the gross profit should be recognized equally in the years 2-4.
- The enacted tax rate for all years is 34%.
- The deferred tax liability at the end of year 1 equals: $240,000 x .34 = $81,600.