Reference no: EM131105658

(Accounting and Classification of Deferred Income Taxes)

Part A: This year, Gumowski Company has each of the following items in its income statement.

1. Gross profits on installment sales.

^{2. Revenues on long-term const r uction contracts.}

^{3. Estimated costs of p r oduct warranty contracts.}

^{4. P r emiums on o f ficers' life insurance policies with Gumowski as beneficiar y .}

Instructions

^{(a ) Unde r wha t condition s woul d defer r e d incom e taxe s nee d t o b e r eporte d i n th e financia l statements?}

^{(b) Specify when defer r ed income taxes would need to be r ecognized for each of the items above, and}

^{indicate the rationale for such r ecognition.}

Part B: Gumowski Company's president has heard that deferred income taxes can be classified in different ways in the balance sheet.

Instructions

Identify the conditions under which deferred income taxes would be classified as a noncurrent item in the balance sheet. What justification exists for such classification?