The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basis by $148,000 at December 31, 2018. This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 25% for 2018 and 36% thereafter. Boze should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as:

a. A liability of $54,140
b. A liability of $53,280.
c. An asset of $53,280.
d. An asset of $54,140.

The correct answer is option (b).

Explanation:

According to the scenario, the given data are as follows:

Exceeding value = $148,000

Tax rate = 36%

So, we can calculate the deferred tax effect by using following formula:

Deferred tax effect = Exceeding value × Tax rate

By putting the value in the formula, we get

Deferred tax effect = $148,000 × 36%

= $53,280

Hence, the Deferred tax liability of $53,280 should be reported in balance sheet.

Bramble Corporation

The cost of December merchandise purchases would be:

= $102,025.

Explanation:

a) Data and Calculations:

Cost of goods sold = 55% of sales

Ending Inventory = 45% of the next month's cost of goods sold.

                                 November    December   January

Budgeted sales        $210,000      $190,000   $180,000

Cost of goods sold   $115,500      $104,500     $99,000

Ending inventory       $47,025       $44,550

Cost of goods available                $149,050

Less Beginning inventory                 47,025

Purchases for December              $102,025

Cost of goods sold:

November = 55% of $210,000 = $115,500

December = 55% of $190,000 = $104,500

January = 55% of $180,000     =  $99,000

Ending Inventory:

October = $51,975

November = 45% of $104,500 = $47,025

December = 45% of $99,000 =  $44,550

Beginning Inventory:

November = $51,975

December = $47,025

January = $44,550

Check:

Beginning Inventory            $47,025

Purchases for December    102,025

Goods available for sale   $149,050

Less Ending Inventory          44,550

Cost of goods sold           $104,500