Question

14) in its year 5 income statement, Dorr Corp. reported depreciation of $160.000. Dorr reported depreciation of $220,000 on its Year 5 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next 3 years.Assume that the enacted income tax rates are 35% for Year 5, 30% for Year 6, and 25% for Year 7 and Year 8. What amount should be included in the deferred income tax ability in Dorr’s December 31, Year5, balance sheet?

$15,000

$18,000

$21,000

$16,000

Answer 1

The correct alternative is fourth one i.e. $16000 which is calculated as follows
	5	6	7	8
Depreciation in Financial reporting	160000	20000	20000	20000
Depreciation for tax purposes	220000
Difference	-60000	20000	20000	20000
Net timing differences	-60000	20000	20000	20000
Tax rate		30%	25%	25%
	16000	6000	5000	5000
Deferred tax liability in Dorr's December, year 5 balance sheet will be			=6000+5000+5000
The correct choice is		=	16000