Hextone Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $14,890,and first-year MACRS depreciation was $27,090.As a result of this book/tax difference,Hextone recorded a $4,270 deferred tax liability.

Question

Quizplus · Accepted Answer

The given information implies that the MACRS depreciation deduction for tax purposes exceeded the book depreciation deduction, resulting in a temporary tax savings for Hextone. However, this difference in depreciation will reverse over time, resulting in higher taxable income in future years. To account for this, Hextone recorded a deferred tax liability of $4,270, which represents the estimated tax owed on the future reversal of the temporary difference. Therefore, the statement is true.