The tax provision (tax expense) is the sum of the taxes payable to the IRS plus the deferred taxes. Deferred taxes are the sum of the current deferred taxes and the noncurrent deferred taxes. Therefore, the solution is $13,000 owed to the IRS plus the net of the deferred taxes (+ $7,000 deferred liability – $4,000 deferred asset). Recall that deferred tax liabilities are additions; deferred tax assets are reductions.
Temporary differences resulting in future taxable amounts create deferred tax liabilities. The deferred tax liability is classified based on the classification of the related asset or liability. Since depreciation is related to a noncurrent asset (equipment), the deferred tax liability is classified as a noncurrent liability. Note: Deferred tax accounts are not classified as contra asset accounts.
A deferred income tax liability of $15,000 related to a noncurrent asset A deferred income tax asset of $3,000 related to a noncurrent liability A deferred income tax asset of $8,000 related to a current liability
Which of the following should Bren, Inc. report in the noncurrent section of its December 31, 1997 balance sheet?
According to SFAS 109 the deferred tax liability of $15,000 and the deferred tax asset of $3,000 relate to noncurrent items and should be netted for presentation purposes. A deferred tax that is related to a current item should never be included in the netting process—it can, however, be netted with other current deferred tax items.
