On january 2, the company acquired some state of the art production equipment at a net cost of $14 million. For Financial reporting purposes, the firm will depreciate the equipment over a 7-year life using straight-line depreciation and a zero salvage value; for tax reporting purposes, however the firm will use a 3-year accelerated depreciation. Given a tax rate of 35% and a first year accelerated depreciation factor of 0.333, by how much will the company’s deferred tax account increase in the first year of the equipment’s life? A. $931,700 B. $1,064,800 C. $1,730,300 D. $2,662,000
Depreciation for financial reporting: 14/7=2M Depreciation for tax purposes:14*0.333=4.662M Temporary difference creating a liability of 4.662-2=2.662M, hence a DTL of 2.662M*0.35=931,700
holy #$% such a straight forward question…i was doing 2.662 * (1-0.35)…and they have it as an option as well…aghh silly mistake! Thanks map1…you rock!