Carrot had current year taxable income

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Carrot Company has been profitable in the past and expects to remain profitable in the future. Carrot sells a product for which it provides a five year warranty. For financial reporting purposes, Carrot estimates its future warranty costs and records a warranty expense and liability at year end, whereas for income tax purposes the company deducts its warranty costs when paid. At the beginning of the current year, the company had a deferred tax asset of $500 related to the warranty liability on its balance sheet. At the end of the current year the company estimates that its ending warranty liability is $2,000.

Carrot had current year taxable income of $10,000 and is subject to an enacted future tax rate of 30%. Prepare a schedule to compute Carrot's 

(a) Ending future deductible amount, 

(b) Ending deferred tax asset, 

(c) Change in deferred tax asset for the current year (deferred tax benefit).

Reference no: EM13868873

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