In its Year 3 income statement, Orr corp. reported depreciation of $400,000. Orr
ID: 2458935 • Letter: I
Question
In its Year 3 income statement, Orr corp. reported depreciation of $400,000. Orr reported depreciation of $550,000 onits Year 3 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 3, 30% for Year 4, and 25% for Year 5 and Year 6. What amount should be included in the deferred income tax liability in Orr’s December 31, Year 3, balance sheet? $37,500 $40,000 $45,000 52,500
Explanation / Answer
ANSWER = d) $52500
Depreciation as per Inomce tax retrurn = $ 550000
Depreciation as per books = $ 400000
Temporary difference = $ 150000
Deferred income tax liability = $ 150000 * 30 % = $ 52500