Question

The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basic by $158,000 at December 31, 2021. This was a result of differences between straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 27% for 2021 and 32% thereafter Boze should report the deferred tax effect of this difference in its December 31, 2021. balance sheet as:

Answer 1

Boze should report the deferred tax effect of this difference in its December 31, 2021. balance sheet as:

Deferred tax liability of $50,560

Explanation:

The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basic by $158,000 at December 31, 2021. This means depreciation on the asset for tax purposes is greater than that for financial reporting purposes.

Therefore, Boze Music's should report a deferred tax liability on its December 31, 201, balance sheet.

Liability to be reported = $158,000 x 32% = $50,560