Question

A company purchase an asset wiht 5- year depreciable life for 75,000 with no expected salvage...

A company purchase an asset wiht 5- year depreciable life for 75,000 with no expected salvage value.

The company uses straight line depreciation for financial statement and uses double-declining for tax accounting. Assume a tax rate of 34%

What is the value of the company's deferred tax account at the end of the second year?

Correct Answer: 6120

Can you show me how to solve this problem?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Straight-line depreciation (SL):

Year 1 = Cost / Life year = 75,000 / 5 = 15,000

Year 2 = 15,000

Double-declining depreciation (DB):

Straight-line rate = (1/life year) × 100 = (1/5) × 100 = 20%

Double declining rate = 20% × 2 = 40%

Year 1 = Cost × 40% = 75,000 × 40% = 30,000

Year 2 = (Cost – Year 1 depreciation) × 40% = (75,000 – 30,000) × 40% = 45,000 × 40% = 18,000

Deferred tax amount:

Year 1 = (DB – SL) × Tax rate = (30,000 – 15,000) × 34% = 15,000 × 34% = 5,100

Year 2 = (DB – SL) × Tax rate = (18,000 – 15,000) × 34% = 3,000 × 34% = 1,020

Total deferred tax at the end of the 2nd year = 5,100 + 1,020 = 6,120

Answer: 6,120

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A depreciable asset is purchased for $50,000. The expected salvage value is zero at the end...
A depreciable asset is purchased for $50,000. The expected salvage value is zero at the end of it’s 8 year useful life. Compute the depreciation schedule by using double declining balance (DDB) to switch over straight line depreciation. Also, determine the book value of the asset after 6 years.
Coyote Corporation purchased machinery for $30,000 with a ten-year useful life and no salvage value. Coyote...
Coyote Corporation purchased machinery for $30,000 with a ten-year useful life and no salvage value. Coyote uses straight-line depreciation for financial reporting purposes and double-declining-balance for income tax purposes. Assuming income tax rate of 30%, the temporary timing difference in the first year will result in: A) an increase in deferred tax liability of $900. B) a decrease in deferred tax liability of $900. C) an increase in deferred tax liability of $3,000.
Calculate the deferred tax asset at 31 December 20X1 based on the following: $10,000 asset acquired...
Calculate the deferred tax asset at 31 December 20X1 based on the following: $10,000 asset acquired 01 January 20X1 Asset has zero estimated salvage value Useful life of five years for both GAAP and tax depreciation GAAP depreciation – straight-line method Tax depreciation – double declining balance method (i.e. 40% of the asset’s depreciable base is depreciated in year one) Tax rate of 30% Select one: a. $2,000 b. $600 c. NA – should be a deferred tax liability instead...
A million-dollar oil drilling rig has a 6-year depreciable life and a $75,000 salvage value at...
A million-dollar oil drilling rig has a 6-year depreciable life and a $75,000 salvage value at the end of that time. Determine which one of the following methods provides the preferred depreciation schedule: DDB or SOYD. Show the depreciation schedule for the preferred method.
The Blueridge Corporation uses straight-line depreciation for financial reporting and the double-decline balance method for tax...
The Blueridge Corporation uses straight-line depreciation for financial reporting and the double-decline balance method for tax accounting. If the company acquired a fixed asset having an original cost of $40,000, an eight-year estimated useful life, and a 10% estimated salvage value, what will be the balance in the deferred income tax account attributable to this asset after two years, assuming Blueridge’s Tax rate is 35 percent. Might it be appropriate for company A to depreciate an instrument over six years...
An asset was purchased for $60,000. It has a 6 year life. The asset is expected...
An asset was purchased for $60,000. It has a 6 year life. The asset is expected to have a salvage value of $7000 after the six years. Show the depreciation and remaining book value for this asset for each of the 6 years using Double Declining Balance depreciation. (Chapter 11). (Be careful not to have book value go below salvage value).
Colvin Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000....
Colvin Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset’s depreciation expense in Year 2 will be: A) 90000 B) 54000 C) 42000 D) 16000 E) 36000
Deuce Company purchased a truck for $80,000 on January 1, 2018. The asset has an expected...
Deuce Company purchased a truck for $80,000 on January 1, 2018. The asset has an expected salvage value of $8,000 at the end of its five-year useful life. Calculate depreciation expense in 2019 (the second year) under: Straight-line depreciation? (2 points) Double-declining balance depreciation? (3 points) Sum-of-years digits depreciation? (3 points)
A depreciable asset with a three-year life has a first cost of $30,000 with a $6,000...
A depreciable asset with a three-year life has a first cost of $30,000 with a $6,000 salvage value. The machine's operating cost is $10,000 in year one, $12,000 in year two and $14,000 in year three. According to the straight line method, the depreciation charge in year 2 is closest to: A. $8,000 B. $10,000 C. $20,000 D. $22,000
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000....
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be: Select one: a. $54,000 b. $16,000 c. $42,000 d. $36,000
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT