On January 1,Year 2,GHI Inc.had depreciable assets with a book value of $920,000 and a historical cost of $1,000,000.CCA totalling $100,000 had been taken on these assets.During Year 2,depreciation of $80,000 and CCA of $20,000 had been taken on these assets.The tax rate in effect is 35%.For Year 2,the temporary differences arising from the above would result in:

Question

Quizplus · Accepted Answer

The temporary difference is the difference between the book value and the tax value of the depreciable assets. The book value is $920,000 and the tax value is $1,000,000 - $100,000 - $20,000 = $880,000. The temporary difference is therefore $40,000.The tax rate is 35%, so the tax effect of the temporary difference is $40,000 x 35% = $14,000. This will result in a decrease to income tax expense of $14,000.