Question

Smith Company receives $500,000 of subscription revenue in advance during 20X1. The subscription revenue is not included on the income statement, but is reported for tax purposes in 20X1. $250,000 will be recognized in 20X2 and $250,000 in 20X3. Smith Company is subject to a 40% tax rate. What is the amount of the deferred tax asset at the end of 20X2

Answer 1

The amount of the deferred tax asset at the end of 20X2 is $100,000.

Deferred tax asset at the end of 20X2

Using this formula

Deferred tax asset=Amount recognized×Tax rate

Where:

Amount recognized=$250,000

Tax rate=40% or 0.40

Let plug in the formula

Deferred tax asset=$250,000×40%

Deferred tax asset=$100,000

Inconclusion the amount of the deferred tax asset at the end of 20X2 is $100,000.

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