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Deferred tax liability

1. Smiley Corporation purchased a machine on January 2, 2006, for $2,000,000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes:

2006 $400,000 2009 $230,000
2007 640,000 2010 230,000
2008 384,000 2011 116,000

Assuming an income tax rate of 30% for all years, the net deferred tax liability that should be reflected on Smiley's balance sheet at December 31, 2007, should be

Deferred Tax Liability
Current Noncurrent

a. $0 $72,000
b. $ 4,800 $67,200
c. $67,200 $ 4,800
d. $72,000 $ 0

A
B
C
D

Solution Preview

In year 2007, the book depreciation is 2,000,000/5=400,000 and the tax depreciation is 640,000. The difference ...

Solution Summary

The solution explains how to calculate deferred tax liability

$2.19