Nuttin But Wings company shows book income of $100,000 before tax. The depreciat

Question

Nuttin But Wings company shows book income of $100,000 before tax. The depreciation expense for the year on equipment used in arriving at that net income on the financial statements was $10,000. However, on the tax return ABC was allowed to deduct $15,000 of depreciation expense on the equipment for the year.
1) What is the tax expense on the financial statements
2) What is the amount of taxes paid to the federal government assuming a 30% tax rate.
3) What is the amount of deferred tax asset or liability on the balance sheet. Please indicate whether the item is a deferred tax asset or a deferred tax liability

Explanation / Answer

1. tax expense on financial statements is 100,000 * 30% = 30,000. 2. taxes paid to fed gov't were 95,000*30% = 28,500 95,000 came from the fact that dpr expenses were 5,000 more for tax 3. 1,500 is the deferred tax liability (difference between 30,000 and 28,500) - they only paid 28,500 but they will pay the rest (1,500) in the future.

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