Question

In its first year of operations, Woodmount Corporation reported pretax accounting income of $640 million for the current year. Depreciation reported in the tax return in excess of depreciation in the income statement was $480 million. The excess tax will reverse itself evenly over the next three years. The current year's tax rate of 25% will be reduced under the current law to 30% next year and 35% for all subsequent years. At the end of the current year, the deferred tax liability related to the excess depreciation will be:

Answer 1

Answer:

At the end of the current year, the deferred tax liability related to the excess depreciation will be 144 million

Explanation:

In order to calculate At the end of the current year, the deferred tax liability related to the excess depreciation we would have to use the following formula:

Deferred tax liability = ($160 million * 25%) + ($160 million * 30%) + ($160 million * 35%)

Deferred tax liability =$40 million + $48 million + $56 million

 Deferred tax liability = $144 million

At the end of the current year, the deferred tax liability related to the excess depreciation will be 144 million