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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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Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of $24,500 for financial reporting purposes and of $20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a $3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019?

  1. a. $300
  2. b. $450
  3. c. $1,050
  4. d. $1,350

To determine

Identify the appropriate journal entry for the transaction.

Explanation

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.

Calculate the amount of net deferred tax liability:

Net deferred tax liability=Deferred tax assetDeferred tax liability = $1,350(1)$1,050(2)= $300

Working note 1: Compute deferred tax asset:

Deferred tax asset=Future deductible amount×Applicable&

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