Clipp, Inc., earns book net income before tax of $600,000. Clipp puts into service a depreciable asset this year, and first year tax depreciation exceeds book depreciation by $120,000. Clipp has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 35%, what is Clipp's deferred income tax liability reported on its GAAP financial statements?
A)$252,000
B)$210,000
C)$168,000
D)$42,000

Question

Quizplus · Accepted Answer

The deferred tax liability is calculated as the temporary difference ($120,000) multiplied by the tax rate (35%), which equals $42,000.