Trinity co. reported taxable income in 2008 of $120 million. At December 31, 2008, reported amount of a few assets and liabilities in a financial statements differed from their tax basis as given below:
Assets Carrying Amount Tax Basis
Accounts Receivable $ 10 million $ 12 million
Prepaid insurance 20 million $0
Prepaid rent insurance 6 million $0
Buildings and equipment (net) 360 million 280 million
Liability- subscriptions received 14 million 0
Liability- postretirement benefits 594 million 0
Unrealized gain from recording investments 4 million 0
Available for sale at fair market value
Total deferred tax asset and deferred tax liability amounts at January 1, 2008, were $250 million and $40 million, respectively. Enacted tax rate is 40 % each year.
1) Find out the total deferred tax asset and deferred tax liability amounts at December 31, 2008.
2) Find out the increase (decrease) in a deferred tax asset and deferred tax liability accounts at December 31, 2008.
3) Find out the income tax payable currently for the year ended December 31, 2008.
4) Create the journal entry to record income taxes for 2008.
5) Illustrate how deferred tax amounts must be classified and reported in the 2008 balance sheet.