Question

g reported pretax accounting income of $860 million for the current year. Depreciation reported in the tax return in excess of depreciation in the income statement was $1,140 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: $380 million

Explanation:

To solve the question, first we have to calculate the depreciation that'll be reported for each year and this will be:

= $1140 million/3 years

= $380 million

Then, the deferred tax liability related to the excess depreciation will be:

= ($380 million × 30%) + ($380 million ×

35%) + ($380 million × 35%)

= $114m + $133m + $133m

= $380 million