At the end of 2020, its first year of operations, Halifax Corp. prepared the following reconciliation between pre-tax accounting income and taxable income: $$\begin{array} { l r }
\text { Pre-tax account ing income } & \$ 800,000 \
\text { Estimated lawsuit expense } & 400,000 \
\text { Excess CCA for tax purposes } & ( 900,000 ) \
\text { Taxable income } & \$ 300,000
\end{array}$$ The estimated lawsuit expense of $ 400,000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $ 300,000 in each of the next three years. The income tax rate is 25% for all years. Halifax adheres to IFRS requirements. The deferred tax liability to be recorded is

Question

At the end of 2020, its first year of operations, Halifax Corp. prepared the following reconciliation between pre-tax accounting income and taxable income: $$\begin{array} { l r } 
\text { Pre-tax account ing income } & \$ 800,000 \
\text { Estimated lawsuit expense } & 400,000 \
\text { Excess CCA for tax purposes } & ( 900,000 ) \
\text { Taxable income } & \$ 300,000
\end{array}$$ The estimated lawsuit expense of $ 400,000 will be deductible in 2021 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $ 300,000 in each of the next three years. The income tax rate is 25% for all years. Halifax adheres to IFRS requirements. The deferred tax liability to be recorded is

Quizplus · Accepted Answer

The deferred tax liability is calculated as the difference between the taxable income and the pre-tax accounting income multiplied by the tax rate. In this case, the deferred tax liability is ($300,000 - $800,000) x 25% = $225,000.

At the End of 2020, Its First Year of Operations