For 2013, The Oscar Company records depreciation expense of $12,000 on its income statement and $9,000 of MACRS depreciation on its tax return. Which of the following answers is correct regarding the difference between the two figures?
A)Net income is understated by $3,000 on the 2013 income statement.
B)The difference in depreciation expense is caused by differences between GAAP and the tax code.
C)Deferred taxes of $3,000 are subtracted from taxable income of 2013.
D)The amount of depreciation recorded on the income tax return must be incorrect.

Question

Quizplus · Accepted Answer

MACRS will typically produce a different depreciation expense than any of the GAAP methods of calculating depreciation. It does not mean that net income is understated, it is just that net income for financial reporting is different than net income for tax reporting. The resulting deferred tax is a liability that does not affect the income statement.

For 2013, the Oscar Company Records Depreciation Expense of $12,000