Problem - Times-Roman Publishing Company reports the following amounts in its first three years of operation:
($ in 000s) 2013 2014 2015
Pretax accounting income $ 250 $ 240 $ 230
Taxable income 290 220 260
The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for tax purposes in the year received, but reported in the income statement in later years when earned. The income tax rate is 40% each year. Times-Roman anticipates profitable operations in the future.
1) What is the balance sheet account for which a temporary difference is created by the situation? Unearned subscription revenue or subscription revenue?
2) For the years 2012, 2014, and 2015 what is the cumulative amount of the temporary difference at year end?
3) Determine the balance in the related deferred tax account at the end of each year. Is it a tax deferred asset or a deferred tax liability?