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Question 10BE

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Intermediate Accounting (Kieso)
Found in: Page 1094

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Short Answer

Clydesdale Corporation has a cumulative temporary difference related to depreciation of $580,000 at December 31, 2017. This difference will reverse as follows: 2018, $42,000; 2019, $244,000; and 2020, $294,000. Enacted tax rates are 34% for 2018 and 2019, and 40% for 2020. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2017.

The cumulative temporary difference is when an organization faces a difference in its total assets and liabilities in its financial statement and income tax base.

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Step by Step Solution

Given the amounts as

Particulars

Amount

Cumulative difference related to depreciation

$580,000

Difference for 2018

$42,000

Difference for 2019

$244,000

Difference for 2020

$294,000

Tax rate for 2018

34%

Tax rate for 2019

34%

Tax rate for 2020

40%

Computation for deferred tax liability on December 31, 2017.

Year

Taxable amount

Tax rate

Deferred tax liability

2018

$42,000

34%

$14,280

2019

$244,000

34%

$82,960

2020

$294,000

40%

$117,600

Total

$214,840

Most popular questions for Business-studies Textbooks

Instructions Complete the following statements by filling in the blanks. (a) In a period in which a taxable temporary difference reverses, the reversal will cause taxable income to be _______ (less than, greater than) pretax financial income. (b) If a $76,000 balance in Deferred Tax Asset was computed by use of a 40% rate, the underlying cumulative temporary difference amounts to $_______. (c) Deferred taxes ________ (are, are not) recorded to account for permanent differences. (d) If a taxable temporary difference originates in 2017, it will cause taxable income for 2017 to be ________ (less than, greater than) pretax financial income for 2017. (e) If total tax expense is $50,000 and deferred tax expense is $65,000, then the current portion of the expense computation is referred to as current tax _______ (expense, benefit) of $_______. (f) If a corporation’s tax return shows taxable income of $100,000 for Year 2 and a tax rate of 40%, how much will appear on the December 31, Year 2, balance sheet for “Income taxes payable” if the company has made estimated tax payments of $36,500 for Year 2? $________. (g) An increase in the Deferred Tax Liability account on the balance sheet is recorded by a _______ (debit, credit) to the Income Tax Expense account. (h) An income statement that reports current tax expense of $82,000 and deferred tax benefit of $23,000 will report total income tax expense of $________. (i) A valuation account is needed whenever it is judged to be _______ that a portion of a deferred tax asset _______ (will be, will not be) realized. (j) If the tax return shows total taxes due for the period of $75,000 but the income statement shows total income tax expense of $55,000, the difference of $20,000 is referred to as deferred tax _______ (expense, benefit).

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