Question

In its 2021 income statement, Pharoah Corp. reported depreciation of $4100000 and interest revenue on municipal obligations of $744000. Pharoah reported depreciation of $6020000 on its 2021 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next 3 years. Pharaoh's enacted income tax rates are 25% for 2021, 20% for 2022, and 15% for 2023 and 2024. What amount should be included in the deferred income tax liability in Pharaoh's December 31, 2021 balance sheet

Answer 1

Answer: $320000

Step-by-step explanation:

First, we calculate the difference in depreciation which will be:

= $6020000 - $4100000

= $1920000

Since the difference in depreciation will be reverse equally over the next 3 years, the amount per year will be:

= $1920000 / 3

= $640000

Defered income tax liability will be:

= ($640000 × 20%) + ($640000 × 15%) + ($640000 × 15%)

= $128000 + $96000 + $96000

= $320000