In 2010, its first year of operations, Bandera Corporation reported pretax financial income of $80, 000 for the year ended December 31.Bandera depreciates its fixed assets using an accelerated cost recovery method for tax purposes and straight-line depreciation for financial reporting.On assets acquired in 2010, the following are differences between depreciation on the tax return and accounting income during the asset's five-year life: $\begin{array}{lll}
& \text {Tax Depreciation in Excess}& \text { Enacted}\
& \text { of Book- Denreciation}& \text {Tax Rata} \
2010 & \$ 18,000 &30 \% \
2011 & 10,000 &30 \% \
2012 & 2,000 & 35 \% \
2013 & (13,000) & 35 \% \
2014 & (17,000) & 40 \% \
\end{array}$
Assuming no other temporary or permanent differences, Bandera's December 31, 2010 balance sheet should include
$$\begin{array}{l}
&\text {Noncurent Deferred}&\text {Income Taxes}\
&\text {Income Tax Liability}&\text {Payable}\
\text {I. }&\$ 5,400 & \$ 18,600 \
\text {II.}&\$ 7,650 & \$ 18,600 \
\text {III.}&\$ 7,650 & \$ 79,400 \
\text {IV.}&\$ 5,400 & \$ 74,000

\end{array}$$

Question

In 2010, its first year of operations, Bandera Corporation reported pretax financial income of $80, 000 for the year ended December 31.Bandera depreciates its fixed assets using an accelerated cost recovery method for tax purposes and straight-line depreciation for financial reporting.On assets acquired in 2010, the following are differences between depreciation on the tax return and accounting income during the asset's five-year life: $\begin{array}{lll}
 & \text {Tax Depreciation in Excess}&  \text { Enacted}\
&  \text { of Book- Denreciation}& \text {Tax Rata} \
 2010 & \$ 18,000 &30 \%  \
2011 & 10,000 &30 \%  \
2012 & 2,000 &  35 \%  \
2013 & (13,000) & 35 \% \
2014 & (17,000) &  40 \% \
\end{array}$
 Assuming no other temporary or permanent differences, Bandera's December 31, 2010 balance sheet should include
$$\begin{array}{l}
&\text {Noncurent Deferred}&\text {Income Taxes}\
&\text {Income Tax Liability}&\text {Payable}\
\text {I. }&\$ 5,400 & \$ 18,600 \
\text {II.}&\$ 7,650 & \$ 18,600 \
\text {III.}&\$ 7,650 & \$ 79,400 \
\text {IV.}&\$ 5,400 & \$ 74,000

\end{array}$$

Quizplus · Accepted Answer

The noncurrent deferred income tax liability is calculated by taking the future taxable amounts under tax depreciation and applying the enacted tax rates for each year. For 2010, the excess tax depreciation is $18,000 with a tax rate of 30%, resulting in a deferred tax liability of $5,400 for that year. For subsequent years, the calculation considers the reversal of these differences and applies the respective tax rates, leading to a total deferred tax liability of $7,650. The option that correctly reflects this calculation is II, which shows a noncurrent deferred income tax liability of $7,650.

In 2010, Its First Year of Operations, Bandera Corporation Reported