Vera gives Willy a $500 check as payment for a debt. Willy crudely raises the amount of the check to $5,000 and transfers it to Xtreem Sportz store for a new bike. Xtreem deposits the check in its Yankee Bank account. Vera is liable for the payment of $5,000 to:

The answer is given below

Explanation:

Deferred tax asset-opening                       $20,000

Accrued Warranty costs $260,000*20%    $52,000

operating loss  $190,000*20%                     $38,000

Prepaid rent $60,000*20%                           $12,000

Total Deferred Tax Asset                           $122,000

Please note that when warranty costs are actually paid,then it will be given benefit of tax,therefore it is deferred tax asset. Operating loss will be adjusted when company is likely to have profits in future therefore it is deferred tax asset. As the rent is prepaid now but expense will be recorded in next year which will result in reduced profits then it is also deferred tax asset.

Whereas the income from municipal bonds,installment sales are deferred liabilities therefore not accounted for in deferred tax asset.