The following information is available for Ryan Corporation: Assets at cost-$260,000 (8 year life,straight-line depreciation,no salvage value,purchased 2 years ago); Accumulated depreciation-$65,000.Accumulated CCA-$105,300; CCA rate-30%; meals and entertainment recorded in the books-$12,000; golf dues paid and expensed on the books-$5,000; pre-tax accounting income-$40,000.No CCA was taken during the current year.Based on this information and a constant tax rate of 45%,which of the following would appear on the statement of financial position as a result of the information given above?

Question

Quizplus · Accepted Answer

The company has claimed CCA (Capital Cost Allowance) on its assets, resulting in a difference between accounting and taxable income. This difference creates a temporary tax effect on the statement of financial position.
The accumulated CCA is greater than the accumulated depreciation; therefore, the company has claimed more tax deductions than accounting expenses. This creates a temporary taxable difference and deferred tax liability. 
The formula to calculate the deferred tax liability is: 
Deferred Tax Liability = (CCA – Depreciation) × Tax rate
= ($260,000 × 30%) – ($65,000 × 45%)
= $18,135

Therefore, a deferred tax liability of $18,135 would appear on the statement of financial position.

The Following Information Is Available for Ryan Corporation: Assets at Cost-$260,000