A dance club purchased new sound equipment for $25,352. It will work for 5 years and has no salvage value. Their tax rate is 41%, and their annual revenues are constant at $14,384. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35% in years 1 and 2 and 30% in Year 3. For purposes of this exercise ignore all expenses other than depreciation. Assume that the tax rate changes for years 4 and 5 from 41% to 31%. What will be the deferred tax liability as of the end of year three? A) $3,144. B) $1,039. C) $2,948. -------------------------------------------------------------------------------- Because the tax rate changes for years 4 and 5 from 41% to 31%, net income will have to be adjusted for financial reporting purposes in year three. What is the amount of this adjustment? A) $1,014. B) $1,030. C) $747.
i remember this question. do you think a question like this would appear on the test considering you need to do full schedules for both tax and book. Seems like the length required to solve this would cause the test creators to omit.
- B 2) C
A A i am confused 
I probably have the wrong answer. Can you show your calculations, kh.asif?
year 3 carrying value=25,352-(25,352*(3/5))=10,140
kh.asif, thats what i did. if thats not right then im going to have to go back over this dam section which i really dont want to do
------------------ Oops, error corrected on my part. I had: .35 * 25,352 = 8873.20 .35 * 25,352 = 5767.58 .30 * 25,352 = 7605.60 ------------ 25,352 <<< Depreciated for tax purposes in 3 years. SL for 3 yrs : $5,070.40 * 3 = 15,211.20 >>> remaining DTL of 10,140.80. 10,140.80 * 0.31 = $3,143.6480 <<<< end of yr 3. $4,157.40 - $3,143.6480 = $1,014.00 <<< Adjustment. -----------------------