Deferred Tax Assets And Liabilities Practice Test

A for-profit entity has a taxable temporary difference of $1,500,000 at December 31, 20X4 due to installment sales recognized for book purposes but deferred for tax purposes; the enacted tax rate is 21%. The temporary difference is expected to reverse evenly over the next three years. Under FASB ASC 740, what is the impact of this temporary difference on deferred taxes and income tax expense at December 31, 20X4 (assume no other temporary differences and no valuation allowance considerations)?

A for-profit entity has deductible temporary differences that would generate a deferred tax asset of $500,000 at December 31, 20X5 using the 21% enacted tax rate. The entity also has a taxable temporary difference that will reverse in the same jurisdiction and period, generating a deferred tax liability of $200,000. Based on available evidence, management concludes it is more likely than not that only $350,000 of the deferred tax asset will be realized. Under FASB ASC 740, under what conditions should the entity recognize a deferred tax asset and related valuation allowance at December 31, 20X5?