ABC Inc.purchased new machinery for $2 million on January 1st, 2014.For accounting purposes, the company depreciates all machinery on a straight-line basis (no salvage value)over a five year period.For tax purposes, CCA on all machinery is taken at a rate of 20%, with half a year's CCA taken in the year of acquisition.The tax rate for 2014 is 40%.The tax rate for years 2015 and later is 35%.Assume that all rates are enacted in the year to which they pertain.Using the shortcut approach, determine the deferred income tax asset or liability at the end of 2014.How (if at all)would your answer change if the tax rate for all years 2014 and beyond were enacted in 2014?

Question

Quizplus · Accepted Answer

The Answer of ABC Inc.purchased new machinery for $2 million on January 1st, 2014.For accounting purposes, the company depreciates all machinery on a straight-line basis (no salvage value)over a five year period.For tax purposes, CCA on all machinery is taken at a rate of 20%, with half a year's CCA taken in the year of acquisition.The tax rate for 2014 is 40%.The tax rate for years 2015 and later is 35%.Assume that all rates are enacted in the year to which they pertain.Using the shortcut approach, determine the deferred income tax asset or liability at the end of 2014.How (if at all)would your answer change if the tax rate for all years 2014 and beyond were enacted in 2014?

ABC IncPurchased New Machinery for $2 Million on January 1st, 2014