Gator Inc.

Determine the change in Gator’s deferred tax assets for the current year.
Gator Inc.
Gator, Inc. is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Assume a 34% corporate tax rate and no valuation allowance.
Tax Book
Debit/(Credit) Debit/(Credit)
Assets:
Cash $ 300 $ 300
Accounts Receivable 5,000 5,000
Buildings 300,000 300,000
Acc. Depreciation (150,000) (80,000)
Furniture & Fixtures 40,000 40,000
Acc. Depreciation (21,000) (15,000)
Total Assets $174,300 $250,300
Liabilities:
Accrued Litigation Expense $ 0 $(27,000)
Note Payable (116,000) (116,000)
Total Liabilities ($116,000) ($143,000)
Stockholder Equity:
Paid in Capital (1,000) (1,000)
Retained Earnings (57,300) (106,300)
Total Liabilities
and Stockholders ($174,300) ($250,300)
Equity
Gator Inc.’s gross deferred tax assets and liabilities at the beginning of Gator’s year are listed below.
Beginning
of Year
Accrued Litigation Expense $21,000
Subtotal $21,000
Applicable Tax Rate 34%
Gross Deferred Tax Asset $ 7,140
Building – Acc. Depreciation $(61,000)
Furniture & fixtures – Acc. Depreciation $ (3,200)
Subtotal $(64,200)
Applicable tax rate 34%
Gross deferred tax liability $ (21,828)
Gator Inc.’s book income before tax is $6,300. Gator has two permanent differences between book and taxable income. It earned $250 in tax exempt municipal bond interest and had $460 in nondeductible meals and entertainment expense.