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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Parker Company identifies depreciation as the only difference for future taxable amounts. In Year 1, its depreciation for financial reporting purposes is $9,000 and $10,500 for income tax reporting purposes. Parker has an income tax rate of 35%. Explain whether this is a deferred tax asset or deferred tax liability, and calculate the amount.

To determine

Explain whether deferred tax asset or deferred tax liability and calculate the amount.

Explanation

Deferred tax asset When the Income Tax Expense account is more than the Income Tax Payable account, this difference is known as Deferred Tax Asset.

Deferred tax liability When the Income Tax Expense account is less than the Income Tax Payable account, this difference is known as Deferred Tax Liability.

In this case, Company P identifies the only difference of $1,500($10,500$9,

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