Question

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.

Answer 1

The amount Clydesdale should report as a deferred tax liability at December 31, 2017 is $214,840

Step-by-step explanation:

The computation of the deferred tax liability is shown below:

= 2018 difference × Enacted tax rates + 2019 difference × Enacted tax rates + 2020 difference × Enacted tax rates

= $42,000 × 34% + $244,000 × 34% + $294,000 × 40%

= $14,280 + $82,960 + $117,600

= $214,840

We considered the difference of each year and its enacted tax rates. Th depreciation is not relevant. Hence, we ignored it