Reference no: EM132891030

Problem - 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 5-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, Carrot 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).