Reference no: EM132586405

Question 1: At the end of Year One, Omaka Corporation is preparing its balance sheet. Depreciation of the company's equipment has created a $200,000 temporary difference for tax purposes. Because of the large amount of depreciation that was deducted this year for tax purposes, the company will have a $150,000 smaller deduction in Year Two than for financial reporting and a $50,000 smaller deduction in Year Three. Omaka also has a second temporary difference. This one is also for $200,000 but results from a warranty that was given out to customers. In Year Two, Omaka expects to have $140,000 more warranty expense for tax purposes than for financial reporting. In Year Three, the warranty for tax purposes is expected to be $60,000 higher than for financial reporting. Assume a tax rate of 20 percent. What is reported for deferred taxes on the company's balance sheet

Option 1: Nothing is reported because the amounts offset each other

Option 2: A current deferred income tax asset of $40,000 is reported as well as a noncurrent deferred income tax liability of $40,000

Option 3: A current deferred income tax asset of $2,000 is reported as well as a noncurrent deferred income tax liability of $2,000

Option 4: A current deferred income tax asset of $28,000 is reported as well as a noncurrent deferred income tax liability of $28,000