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12 July, 16:09

2. On January 2, 2017, heavy equipment costing $800,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below: Tax Depreciation 2017 2018 2019 2020 Total $264,000 $360,000 $120,000 $56,000 $800,000 3. The enacted tax rates are 40% for all years. Instructions (a) Prepare a schedule comparing depreciation for financial reporting and tax purposes. (b) Determine the deferred tax (asset) or liability at the end of 2017.

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  1. 12 July, 16:44
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    The solution to the given problem is done below.

    Explanation:

    (a) Depreciation

    for Financial Depreciation for Temporary

    Year Reporting Purposes Tax Purposes Difference

    2017 $160,000 $264,000 (104,000)

    2018 $160,000 $360,000 (200,000)

    2019 $160,000 $120,000 40,000

    2020 $160,000 $56,000 104,000

    2021 $160,000 0 $160,000

    $800,000 $800,000 0

    (b) 2018 2019 2020 2021 Total

    Future taxable

    amounts:

    Depreciation $ (200,000) $40,000 104,000 $160,000 $104,000

    Deferred tax liability: $104,000 * 40% = $41,600 at the end of 2017.
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