Question

Uqua Inc. purchased a depreciable asset for $189,000. First-year depreciation for book purposes was $22,000, and first-year MACRS depreciation was $37,800. If Uqua's marginal tax rate is 21%, the excess tax depreciation results in a $3,318:_____________.

Answer 1

options:

• Deferred tax asset

• Deferred tax liability

ANSWER : DEFERRED TAX LIABILITY

Step-by-step explanation:

Deferred tax refers to the tax liability arising due to a temporary difference between accounting depreciation and corporate tax depreciation as represented by MACRS(modified accelerated cost recovery system).

Deferred tax asset occurs when accounting depreciation rate is lower than MACRS.

Deferred tax liability occurs when accounting depreciation rate is higher than MACRS. This results in a future tax liability of $3,318.