Differences in income for financial statement-tax purposes

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Reference no: EM131296144

Davo Inc. began operations in January 2013. For certain of its property sales, Davo recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Davo recognizes income when it collects cash from the buyer's installment payments.

In 2013, Davo had $681 million in sales of this type. Scheduled collections for these sales are as follows:

2013 $84 million

2014 138 million

2015 130 million

2016 163 million

2017 166 million

$681 million

Assume that Davo has a 29% income tax rate and that there were no other differences in income for financial statement and tax purposes.

Suppose that, in 2014, legislation revised the income tax rates so that Davo would be taxed in 2015 and beyond at 39%, rather than 29%. Assume that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2014, what deferred tax liability would Davo report in its year-end 2014 balance sheet? (Round your answer to the nearest whole million.)

Please show how you got your numbers, especially the awnser, all methods used must be in accordance with GAAP and US Tax Laws,

Reference no: EM131296144

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