Question

The pretax financial statement income for Yeager Industries was $32 million the year ended December 31, 2018. Yeager’s taxable income was $25 million. The difference was due to differences between depreciation for financial reporting purposes and tax purposes. The enacted tax rate is 40% for 2018 and 35% thereafter. If no 2018 taxes have been paid, what is Yeager‘s current liability for income taxes for 2018

Answer 1

$10 million

Step-by-step explanation:

Yeager's current liability for 2018 = $25 million x 40% = $10 million

deferred tax liability = ($32 million - $25 million) x 40% = $2,800,000

Deferred tax liabilities occur due to differences between US GAAP accounting rules and the rules used by the IRS to determine current income. The most common source of deferred tax liabilities is depreciation, and the different methods for expensing depreciation or even bonus depreciation.