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Indata Company sold a specially manufactured item for $5,000,000 on December 31, 20X6. The item was sold on an installment sale basis, with $1,000,000 paid on the date of the sale and $4,000,000 to be paid in four annual installments of $1,000,000 plus interest at the market rate of 6%. Indata’s tax rate is 40% and its costs to construct the item were $2,500,000. Indata recognizes the entire amount of the sale as income on the date the sale is made for accounting purposes, but not until cash is received for tax purposes.
On its balance sheet dated December 31, 20X6, Indata will, as a result of the transaction described above, increase its deferred tax: A. liability by $800,000. B. asset by $800,000. C. liability by $200,000. |