Calculating and Reporting Deferred Income Taxes Bens\' Corporation paid $12,000

Question

Calculating and Reporting Deferred Income Taxes Bens' Corporation paid $12,000 on December 31, 2016, for equipment with a three-year useful life. The equipment will be depreciated in the amount of $4,000 each year. Bens' took the entire $12,000 as an expense in its tax return in 2016. Assume this is the only timing difference between the firm's books and its tax return. Bens tax rate is 40%. Required a. What amount of deferred tax liability should appear in Bens' 12/31/2016 balance sheet? S 0 b. Where in the balance sheet should the deferred tax liability appear? Current deferred taxty Long-term deferred tax liability c. What amount of deferred tax liability should appear in Bens' 12/31/2017 balance sheet? Deferred tax liability

Explanation / Answer

a.

Deferred Tax Liability = 8000*40% = 3200

b.

Deferred Tax Liability of $ 1600 ( 4000*40%) will be reversed in next year (2017) and remaining deferred tax liability of $ 1600 will be reversed after 2 years from now i.e. in year 2018 .

Thus, 1600 will be current deferred tax liability & 1600 will be long term deferred tax liability

c.

Deferred Tax Liability appearing in balance sheet on 31/12/2017 will be $ 1600 [3200-1600]

Account Tax Temporary Difference Deduction allowance 4000 12000 -8000

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