Deferred Income Taxes At the End of Its First Year of Operations, Harding

question 130

Essay

Deferred income taxes
At the end of its first year of operations, Harding Construction, Inc., included in its statement of financial position a noncurrent liability entitled "Deferred Taxes."
(a) Briefly explain what deferred taxes represents, including how this liability came into existence and whether such an item is generally perceived as favorable or unfavorable from company management's point of view.
(b) If Harding Construction, Inc., is a successful, growing business, would you expect the liability for deferred taxes to increase or decrease over the next few years? Explain.

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Definitions:

Support Department Allocations

The process of distributing overhead costs from service departments to direct production areas, often based on specific allocation bases.

Operating Income

Income generated from the normal business operations of a company, excluding expenses from interest and taxes.

Return on Investment

A performance measure used to evaluate the efficiency or profitability of an investment.

Minimum Return on Investment

The lowest acceptable rate of return on an investment, used to assess potential investments' viability.