The Puchalski Company reported the following:
Year 1 Year 2 Year 3__Year 4 Income before taxes $1,000 $1,000 $900 $800 Taxable income $800 $900 $900 $1,000
The differences between income before taxes and taxable income are the result of using accelerated depreciation for tax purposes on an asset purchased in Year 1. Puchalski had no deferred tax liability prior to Year 1. If the tax rate is 40%, what is the amount of the deferred tax liability reported at the end of Year 4?
A)$40.
Explanation Year 1 Year 2 Year 3__Year 4 Income tax expense $400 $400 $360 $320 Taxes paid $320 $360 $360 $400 Deferred tax liability $80 $120 $120 $40
(Study Session 8, Module 29.3, LOS 29.d)
Acccording to Kaplan note, Under USGAAP, deferred tax asset and deferred tax liability are not typically netted.