Question

The financial reporting carrying amount of Johns-Hopper Company's only depreciable asset exceeded its tax basis by $750,000 at December 31, 2018. This was a result of differences between depreciation for financial reporting purposes and tax purposes. The asset was acquired earlier in the year. Johns-Hopper has no other temporary differences. The enacted tax rate is 30% for 2018 and 40% thereafter. Johns-Hopper should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as:

Answer 1

Answer: Liability of $300,000

Explanation:

In the question above, what we have is a deferred tax liability, which could be explained as the amount accrued in taxes at a present time but payable in the future. The tax rate will not be based in the present tax rate. Thus is why we will not be using the 30% tax tate of 2018 in calculating the tax amount.

Tax rate = 40%

Exceeded tax basis = $750,000

0.4 × 750,000 = $300,000

Therefore, Johns-Hopper should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as Liability of $300,000

Answer 2

Answer:

$300000

Explanation:

The tax base of an asset is the amount that is paid as tax for that asset. Deferred tax is tax incurred presently but can be paid in the future. This is as a result of the time at which the tax is accrued and when the tax is paid.The difference between the tax payable income statement and the actual taxes paid is a deferred tax asset.

Given that:

$750000 of Johns-Hopper Company's only depreciable asset exceeded its tax basis and he enacted tax rate is 30% for 2018 and 40% thereafter, the deferred tax liability is given as:

deferred tax liability = $750000 × 40%  = $750000 × 0.4 = $300000