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Reading 37: Income Taxes - LOS d ~ Q34-36

Q34. A firm is purchasing a new file server for $680,000, with a 4-year expected life and a salvage value of $50,000. It is expected that the new server will generate an additional $200,000 in revenue each year. The firm will use the straight line method to depreciate the server for financial reporting, but the sum-of-year’s digits (SYD) method for tax purposes. The tax rate is 35%. What will be the accumulated deferred tax liability at the end of the second year?

A)   $33,075.

B)   $11,025.

C)   $44,100.

Q35. Corcoran Corp acquired an asset on 1 January 2004, for $500,000. For financial reporting, Corcoran will depreciate the asset using the straight-line method over a 10-year period with no salvage value. For tax purposes the asset will be depreciated straight line for five years and Corcoran’s effective tax rate is 30%. Corcoran’s deferred tax liability for 2004 will:

A)   increase by $15,000.

B)   decrease by $50,000.

C)   decrease by $15,000.

Q36. Nespa, Inc., has a deferred tax liability on its balance sheet in the amount of $25 million. A change in tax laws has increased future tax rates for Nespa. The impact of this increase in tax rate will be:

A)   an increase in deferred tax liability and an increase in tax expense.

B)   a decrease in deferred tax liability and a decrease in tax expense.

C)   a decrease in deferred tax liability and an increase in tax expense.

答案和详解如下:

Q34. A firm is purchasing a new file server for $680,000, with a 4-year expected life and a salvage value of $50,000. It is expected that the new server will generate an additional $200,000 in revenue each year. The firm will use the straight line method to depreciate the server for financial reporting, but the sum-of-year’s digits (SYD) method for tax purposes. The tax rate is 35%. What will be the accumulated deferred tax liability at the end of the second year?

A)   $33,075.

B)   $11,025.

C)   $44,100.

Correct answer is C)

Year

1

2

3

4

Annual Revenue

200,000

200,000

200,000

200,000

Dep. For Tax

252,000

189,000

126,000

63,000

Income

–52,000

11,000

74,000

137,000

Tax

–18,200

3,850

25,900

47,950

 

 

 

 

 

Dep. For Reporting

157,500

157,500

157,500

157,500

Income

42,500

42,500

42,500

42,500

Tax

14,875

14,875

14,875

14,875

 

 

 

 

 

Deferred tax credit

–33,075

–11,025

11,025

33,075

Total deferred tax credit

–33,075

–44,100

–33,075

 

Q35. Corcoran Corp acquired an asset on 1 January 2004, for $500,000. For financial reporting, Corcoran will depreciate the asset using the straight-line method over a 10-year period with no salvage value. For tax purposes the asset will be depreciated straight line for five years and Corcoran’s effective tax rate is 30%. Corcoran’s deferred tax liability for 2004 will:

A)   increase by $15,000.

B)   decrease by $50,000.

C)   decrease by $15,000.

Correct answer is A)

Straight-line depreciation per financial reports = 500,000 / 10 = $50,000

Tax depreciation = 500,000 / 5 = $100,000

Temporary difference = 100,000 − 50,000 = $50,000

Deferred tax liability will increase by $50,000 × 30% = $15,000

Q36. Nespa, Inc., has a deferred tax liability on its balance sheet in the amount of $25 million. A change in tax laws has increased future tax rates for Nespa. The impact of this increase in tax rate will be:

A)   an increase in deferred tax liability and an increase in tax expense.

B)   a decrease in deferred tax liability and a decrease in tax expense.

C)   a decrease in deferred tax liability and an increase in tax expense.

Correct answer is A)

An increase in tax rates will increase future deferred tax liability, and the impact of the increase in liability will be reflected in the income statement of the year in which the tax rate change is effected.

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