Question

Youngman Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes. Deferred tax liability related to depreciation difference $38,000 Deferred tax asset related to warranty liability 62,000 Deferred tax liability related to revenue recognition 96,000 Deferred tax asset related to litigation accruals 27,000 Indicate how these balances would be presented in Youngman’s December 31, 2017, balance sheet.

Short answer

Litigation riskis alegal actionthat thecourt of lawtakes against the organization due to anyillegal practice. The litigation risk can come from the organization'sclients or customers.

Step-by-step solution

Calculation of the deferred tax asset and the deferred tax liability

$\begin{array}{rcl}\mathrm{Deferred}\mathrm{tax}\mathrm{asset}& =& \mathrm{Deferred}\mathrm{tax}\mathrm{asset}\mathrm{related}\mathrm{to}\mathrm{warranty}\mathrm{liability}-\mathrm{Deferred}\mathrm{tax}asset\mathrm{related}\mathrm{to}\mathrm{depreciation}\mathrm{difference}\\ & =& \$62,000-\$38,000\\ & =& \$24,000\end{array}$

$\begin{array}{rcl}\mathrm{Deferred}\mathrm{tax}\mathrm{asset}& =& \mathrm{Deferred}\mathrm{tax}liability\mathrm{related}\mathrm{to}revenuerecognition-\mathrm{Deferred}\mathrm{tax}\mathrm{liability}\mathrm{related}\mathrm{to}litigationaccruals\\ & =& \$96,000-\$27,000\\ & =& \$69,000\end{array}$

Indication of the amounts

Youngman Corporation
Balance Sheet
Liabilities	Amount
Long-term liabilities
Deferred tax liability	$69,000
Assets	Amount
Current assets
Deferred tax asset	$24,000