Question

At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A disclosure note reveals that the entire $400,000 will be recognized in the income statement in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a:

Answer 1

Question Completion with answer options:

a- Current deferred tax asset  

b- Non-current deferred tax asset  

c- Current deferred tax liability  

d- Non-current deferred tax liability

Answer:

Newsmax Inc.

In the absence of other temporary differences, in the balance sheet one would also expect to find a:

a- Current deferred tax asset

Explanation:

When Newsmax Inc. received the subscriptions of $400,000 in advance, a deferred tax asset will arise on its balance sheet. This deferred tax asset results from the overpayment or advance payment of taxes on the $400,000 taxed because cash has been received, although, the associated costs have not been recorded. Deferred tax asset is the opposite of a deferred tax liability as the latter represents income taxes owed to the IRS, which will be settled in the coming period(s).