Bearings Manufacturing Company Inc. purchased a new machine on January 1, 2018 f

Question

Bearings Manufacturing Company Inc. purchased a new machine on January 1, 2018 for S120,000. The company uses the straight-line depreciation method with an estimated equipment life of 5 years and a zero salvage value for financia Modified Accelerated Cost Recovery System (MACRS) with an estimated equipment life of 3 years for income tax reporting purposes. Bearings is subject to a 25% Assume that the deferred tax liability at the beginning of the year is zero and that Bearings has a positive earnings tax position. The MACRS depreciation rates for 3-year equipment are shown below l statement purposes, and uses the 3-year marginal income tax rate Year Rate 33.33% 44.45 14.81 7.41 4 For Bearings Manufacturing Company Inc., assume that the following new corporate income tax rates will go into effect: 2019-2021 30% 2022 35% What is the amount of the deferred tax asset/liability at December 31, 2018 (rounded to the nearest whole dollar)? a) S9,000 b) $8,400 c) $6,000 d) S4,533

Explanation / Answer

I am getting the answer as $4000 Deferred Tax Asset

Calculation of Defereed Tax Calculation of Depreciation as per Financial Statements Purpose Year Opening WDV Depreciation Closing WDV 2018 1 120000 24000 96000 2019 2 96000 24000 72000 2020 3 72000 24000 48000 2021 4 48000 24000 24000 2022 5 24000 24000 0 Depreciation as per Income Tax Year Opening WDV Rate Depreciation Closing WDV 2018 1 120000 33.33% 39996 80004 2019 2 80004 44.45% 53340 26664 2020 3 26664 14.81% 17772 8892 2021 4 8892 7.41% 8892 0 Calculation of Deferred Tax Asset/Laibility 2018 2019 2020 2021 2022 Depreciation as per Financial Statements 24000 24000 24000 24000 24000 Depreciation as per Income Tax 39996 53340 17772 8992 Difference -15996 -29340 6228 15008 24000 Tax Rate 25% 30% 30% 30% 35% DTL/(DTA) -3999 -8802 1868.4 4502.4 8400 Deferred Tax Schedule 2018 2019 2020 2021 2022 Opening 0 -3999 -12801 -10932.6 -6430.2 For the Year -3999 -8802 1868.4 4502.4 8400 Closing -3999 -12801 -10932.6 -6430.2 1969.8

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---