Question

Clydesdale Corporation has a cumulative temporary difference related to depreciation of $580,000 at December 31, 2020. This difference will reverse as follows: 2021, $42,000; 2022, $244,000; and 2023, $294,000. Enacted tax rates are 17% for 2021 and 2022, and 20% for 2023. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2020.

Answer 1

Clydesdale should report a deferred tax liability of $107,420 at December 31, 2020.

Step-by-step explanation:

To compute the amount Clydesdale should report as a deferred tax liability at December 31, 2020, we need to calculate the cumulative temporary difference multiplied by the enacted tax rates for each year when it will reverse.

For 2021, the temporary difference is $42,000, and the enacted tax rate is 17%, so the deferred tax liability for 2021 is $42,000 * 0.17 = $7,140.

Similarly, for 2022, the deferred tax liability is $244,000 * 0.17 = $41,480. And for 2023, the deferred tax liability is $294,000 * 0.20 = $58,800.

The total deferred tax liability at December 31, 2020, is the sum of these three amounts: $7,140 + $41,480 + $58,800 = $107,420.

Answer 2

The Answer is given below

Step-by-step explanation:

The deferred tax liability=$580,000*17%=$98,600

The journal Entry for this will be at December 31,2020;

Deferred Tax Expense Dr.$98,600

Deferred Tax Liability Cr.$98,600

This temporary difference will be reduced in following year and in that particular year deferred asset will be recognized.

In the absence of information for tax year December 31,2020, the tax rate 17% is used.