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    Deferred tax liability

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    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

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    https://brainmass.com/business/accounting/deferred-tax-liability-263332

    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