Question

An example of a book-tax difference resulting in a deferred tax asset is the excess of accelerated macrs depreciation over gaap straight-line depreciation.

A. True
B. False

Answer 1

The answer is True. The excess of accelerated MACRS depreciation over GAAP straight-line depreciation results in a deferred tax asset.

Step-by-step explanation:

The example given, which is the excess of accelerated MACRS depreciation over GAAP straight-line depreciation, results in a deferred tax asset.

This book-tax difference occurs because the MACRS depreciation method allows for greater depreciation deductions in the earlier years of an asset's life, while the GAAP straight-line depreciation method allocates the same depreciation expense evenly over the asset's useful life.

As a result, the accelerated MACRS depreciation creates a temporary difference between the higher tax deductions taken for tax purposes and the lower depreciation expense recognized for financial reporting purposes under GAAP. This temporary difference leads to lower taxable income and thus, a deferred tax asset is created.