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Basic Question 7 of 20
Assume U.S. GAAP. A company records the following two transactions:
II. There is $230,000 in installment sales. No payments are required for one year after which collections will be made on an equal basis over 12 months and taxed on a cash basis. The entire sale and related profit will be recognized for financial reporting purposes in the year of sale.
I. $100,000 of rental revenue is received in advance on a two-year lease. It is taxed on a cash basis but deferred for accounting purposes.
II. There is $230,000 in installment sales. No payments are required for one year after which collections will be made on an equal basis over 12 months and taxed on a cash basis. The entire sale and related profit will be recognized for financial reporting purposes in the year of sale.
Which of the above transactions will most likely give rise to a deferred tax liability on the balance sheet?
User Contributed Comments 4
| User | Comment |
|---|---|
| KrzysztofW | whatever |
| Inaganti6 | How do we know the company reported the unearned revenue on the tax statement ? |
| GBolt93 | Aren't they required by law to do so? |
| khalifa92 | The financial statement reported revenue 230,000. which wasn't reported for tax purposes ( due lack of cash movement ). creation of tax liability. |
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Learning Outcome Statements
explain how deferred tax liabilities and assets are created and the factors that determine how a company's deferred tax liabilities and assets should be treated for the purposes of financial analysis
CFA® 2024 Level I Curriculum, Volume 3, Module 9.