14) in its year 5 income statement, Dorr Corp. reported depreciation of $160.000

Question

14) in its year 5 income statement, Dorr Corp. reported depreciation of $160.000. Dorr reported depreciation of $220,000 on its Year 5 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next 3 years.Assume that the enacted income tax rates are 35% for Year 5, 30% for Year 6, and 25% for Year 7 and Year 8. What amount should be included in the deferred income tax ability in Dorr’s December 31, Year5, balance sheet?

$15,000

$18,000

$21,000

$16,000

Explanation / Answer

The correct alternative is fourth one i.e. $16000 which is calculated as follows 5 6 7 8 Depreciation in Financial reporting 160000 20000 20000 20000 Depreciation for tax purposes 220000 Difference -60000 20000 20000 20000 Net timing differences -60000 20000 20000 20000 Tax rate 30% 25% 25% 16000 6000 5000 5000 Deferred tax liability in Dorr's December, year 5 balance sheet will be =6000+5000+5000 The correct choice is = 16000

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