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30 July, 12:50

The financial reporting carrying amount of Johns-Hopper Company's only depreciable asset exceeded its tax basis by $750,000 at December 31, 2018. This was a result of differences between depreciation for financial reporting purposes and tax purposes. The asset was acquired earlier in the year. Johns-Hopper has no other temporary differences. The enacted tax rate is 30% for 2018 and 40% thereafter. Johns-Hopper should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as:

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  1. 30 July, 16:19
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    Answer: Liability of $300,000

    Explanation:

    In the question above, what we have is a deferred tax liability, which could be explained as the amount accrued in taxes at a present time but payable in the future. The tax rate will not be based in the present tax rate. Thus is why we will not be using the 30% tax tate of 2018 in calculating the tax amount.

    Tax rate = 40%

    Exceeded tax basis = $750,000

    0.4 * 750,000 = $300,000

    Therefore, Johns-Hopper should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as Liability of $300,000
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