Brown and Lowery, Inc. reported $470 million in income before income taxes for 2016, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $50 million. The firm also had non-tax-deductible expenses of $20 million relating to permanent differences. The income tax rate for 2016 was 35%, but the enacted rate for years after 2016 is 40%. The balance in the deferred tax liability in the December 31, 2016, balance sheet is:

Question

Business

Kenley Willis

24 December, 11:58

Brown and Lowery, Inc. reported $470 million in income before income taxes for 2016, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $50 million. The firm also had non-tax-deductible expenses of $20 million relating to permanent differences. The income tax rate for 2016 was 35%, but the enacted rate for years after 2016 is 40%. The balance in the deferred tax liability in the December 31, 2016, balance sheet is:

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Giuliana Page · Answer 1

The balance in the deferred tax liability in the December 31, 2016, balance sheet is $20 million

Explanation:

Given that:

Brown and Lowery, Inc. income before tax = $470 million

non-tax-deductible expenses = $20 million

The amount of tax depreciation that exceeded depreciation for financial reporting purposes = $50 million

The income tax rate for 2016 = 35%

the enacted rate for years after 2016 = 40%.

The balance in the deferred tax liability in the December 31, 2016, balance sheet is = The amount of tax depreciation that exceeded depreciation for financial reporting purposes * the enacted rate for years after 2016 = $50 million * 40% = $20 million.

The balance in the deferred tax liability in the December 31, 2016, balance sheet is $20 million