Question

Relix, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year before recording any Federal net deferred tax asset or net deferred tax liability.
Tax Debit/(Credit) Book Debit/(Credit)
Assets Cash $500 $500
Accounts receivable 8,000 8,000
Buildings 750,000 750,000
Accumulated depreciation (450,000) (380,000)
Furniture and fixtures 70,000 70,000
Accumulated depreciation (46,000) (38,000)
Total assets $332,500 $410,500
Liabilities Accrued litigation expense $0 ($50,000)
Note payable (78,000) (78,000)
Total liabilities ($78,000) ($128,000)
Stockholders' Equity Paid-in capital ($10,000) ($10,000)
Retained earnings (244,500) (272,500)
Total liabilities and stockholders' equity ($332,500) ($410,500)

Based on this information, determine Relix's net deferred tax asset or net deferred tax liability at year end. Assume a 21% Federal corporate tax rate and no valuation allowance.

Answer 1

Answer:

($3,528)

Explanation:

Calculation to determine Relix's net deferred tax asset or net deferred tax liability at year end.

Beginning of the Year Current year difference End of Year

Building-Accumulated depreciation

($57,000) ($13,000) ($70,000)

($57,000-$70,000=-$13,000)

Furniture and fixtures-Accumulated Depriciation ($4,200) ($3,800) ($8,000)

($4,200-$8,000=$3,800)

Subtotal ($61,200) ($16,800) ($78,000)

($57,000+$4,200=$61,200)

($13,000+$3,800=$16,800)

($70,000+$8,000=$78,000)

Applicable tax rate 21% 21% 21%

Gross deferred tax liability

($12,852) ($16,380)

(21%*$61,200=$12,852)

(21%*$78,000=$16,380)

Change in deferred tax liability ($3,528)

(21%*$16,380)

Therefore net deferred tax liability at year end is ($3,528)