For calendar year 2014, Kane Corp. reported depreciation of $1,200,000 in its income statement. On its 2014 income tax return, Kane reported depreciation of $1,800,000. Kane's income statement also included $225,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 30% for 2014 and 2015, and 24% for 2016 and 2017. The depreciation difference and warranty expense will reverse over the next three years as follows: These were Kane's only temporary differences. In Kane's 2014 income statement, the deferred portion of its provision for income taxes should be

Question

For calendar year 2014, Kane Corp. reported depreciation of $1,200,000 in its income statement. On its 2014 income tax return, Kane reported depreciation of $1,800,000. Kane's income statement also included $225,000 accrued warranty expense that will be deducted for tax purposes when paid. Kane's enacted tax rates are 30% for 2014 and 2015, and 24% for 2016 and 2017. The depreciation difference and warranty expense will reverse over the next three years as follows:  These were Kane's only temporary differences. In Kane's 2014 income statement, the deferred portion of its provision for income taxes should be

Quizplus · Accepted Answer

The deferred tax liability associated with the depreciation difference for 2014 is ($1,800,000 - $1,200,000) x 30% = $180,000. The deferred tax asset associated with the warranty expense for 2014 is $225,000 x 30% = $67,500. The net deferred tax liability is $180,000 - $67,500 = $112,500, which should be recorded as a deferred tax liability on the balance sheet and included as a provision for income taxes on the income statement. Thus, the answer is option C.

For Calendar Year 2014, Kane Corp