Question

Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2017. 1. Mooney Co. has developed the following schedule of future taxable and deductible amounts. 2018 2019 2020 2021 2022 Taxable amounts \(300 \)300 \(300 \) 300 \(300 Deductible amount — — — (1,600) — 2. Roesch Co. has the following schedule of future taxable and deductible amounts. 2018 2019 2020 2021 Taxable amounts \)300 \(300 \) 300 \(300 Deductible amount — — (2,300) — Both Mooney Co. and Roesch Co. have taxable income of \)4,000 in 2017 and expect to have taxable income in all future years. The tax rates enacted as of the beginning of 2017 are 30% for 2017–2020 and 35% for years thereafter. All of the underlying temporary differences relate to noncurrent assets and liabilities. Instructions For each of these two situations, compute the net amount of deferred income taxes to be reported at the end of 2017, and indicate how it should be classified on the balance sheet.

Short answer

Non-current assets are those business assets available for a long-term duration of time. These assets provide afuture benefit to the organization in the long run.

Step-by-step solution

Situation 1 Mooney Co.

Year	Taxable amount	Tax rate	Deferred tax asset	Deferred tax liability
2018	$300	30%		$90
2019	$300	30%		$90
2020	$300	30%		$90
2021	($1,600)	35%	($560)
2022	$300	35%		$105
Total	($400)		($560)	$375

Indication of the Mooney Co. in the balance sheet

Mooney Co
Balance sheet
Assets	Amount
Non-current assets
Other assets
Deferred tax asset $\left(\$560-\$375\right)$	$185

Situation 2 Roesch Co.

Year	Taxable amount	Tax rate	Deferred tax asset	Deferred tax liability
2018	$300	30%		$90
2019	$300	30%		$90
2020	$300	30%		$90
2020	$300	30%		$90
2021	($2,300)	35%	($805)
Total	($1,100)		($805)	$360

Indication of the Roesch Co. in the balance sheet

Roesch Co
Balance sheet
Assets	Amount
Non-current assets
Other assets
Deferred tax asset $\left(\$805-\$360\right)$	$445