Determine deferred tax assets and liabilities
Response to the following problem:
Corning-Howell reported taxable income in 2016 of $120 million. At December 31, 2016, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below:
Carrying Amount Tax Basis
Assets
Current
Net accounts receivable $10 million $ 12 million
Prepaid insurance 20 million 0
Prepaid advertising 6 million 0
Noncurrent
Investments at fair value with changes in OCI* 4 million 0
Buildings and equipment (net ) 360 million 280 million
Liabilities
Current
Liability-subscriptions received 14 million 0
Long-terrn
Liablity-postretirement benefits $94 million 0
*Gains and losses taxable hen investments are sold.
The total deferred tax asset and deferred tax liability amounts at January 1, 2016, were $250 million and $40 million, respectively. The enacted tax rate is 40% each year.
Required:
1. Determine the total deferred tax asset and deferred tax liability amounts at December 31, 2016.
2. Determine the increase (decrease) in the deferred tax asset and deferred tax liability accounts at December 31, 2016.
3. Determine the income tax payable currently for the year ended December 31, 2016.
4. Prepare the journal entry to record income taxes for 2016.
5. Show how the deferred tax amounts should be classified and reported in the 2016 balance sheet.