Question

All-Star Enterprises purchased a machine on January 1. The company uses straight-line depreciation for financial reporting and accelerated depreciation for tax purposes. Depreciation for tax purposes during the year was $36,000 greater than depreciation for financial reporting. Assuming a 30% tax rate will apply in the future, how much will be recorded as a deferred tax liability during the year

Answer 1

The amount that will be recorded as a deferred tax liability during the year is $10800.

How to calculate the tax liability?

From the information given, the depreciation for tax purposes during the year was $36,000 greater than depreciation for financial reporting and a 30% tax rate will apply in the future.

Therefore, the amount that will be recorded as a deferred tax liability during the year will be:

= 30% × $3600

= 0.3 × $36000

= $10800

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