At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A disclosure note reveals that the entire $400,000 will be recognized in the income statement in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a: Multiple Choice Noncurrent deferred tax liability. Noncurrent deferred tax asset. Current deferred tax liability. Current deferred tax asset.

Question

Walter Richmond

Business

31 January, 03:38

At the end of the current year, Newsmax Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A disclosure note reveals that the entire $400,000 will be recognized in the income statement in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a: Multiple Choice Noncurrent deferred tax liability. Noncurrent deferred tax asset. Current deferred tax liability. Current deferred tax asset.

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Jagger Holder · Answer 1

Current deferred tax liability

Explanation:

The subscriptions received in advance would increase revenue next year as well as the net income, hence more taxes would be paid next year due to the subscriptions by the time it is recognized as revenue by debiting the subscriptions received in advance account and crediting the revenue.

Since it would increase the amount of taxes, it is a deferred tax liability.

In addition, the necessary taxes is payable in a year's time, hence it is a current deferred tax liability.