At the beginning of 2021, Crane Co. purchased an asset for $1200000 with an estimated useful life of 5 years and an estimated salvage value of $90000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Crane Co.’s tax rate is 20% for 2021 and all future years. At the end of 2021, what are the book basis and the tax basis of the asset?   Book basis Tax basis $888000 $630000 $978000 $720000 $888000 $720000 $978000 $630000

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.