Rodeo Corporation reported depreciation of $450,000 on its 2014 tax return.However,in its 2014 income statement,Rodeo reported depreciation of $300,000,as well as $30,000 interest revenue on tax-free bonds.The difference in depreciation is only a temporary difference,and it will reverse equally over the next three years.Rodeo's enacted income tax rates are as follows:

What amount should be included in the deferred income tax liability in Rodeo's December 31,2014,balance sheet?

Question

Rodeo Corporation reported depreciation of $450,000 on its 2014 tax return.However,in its 2014 income statement,Rodeo reported depreciation of $300,000,as well as $30,000 interest revenue on tax-free bonds.The difference in depreciation is only a temporary difference,and it will reverse equally over the next three years.Rodeo's enacted income tax rates are as follows:

What amount should be included in the deferred income tax liability in Rodeo's December 31,2014,balance sheet?

Quizplus · Accepted Answer

The difference between tax depreciation ($450,000) and financial statement depreciation ($300,000) is a temporary difference that will reverse equally over the next three years. Therefore, the deferred tax liability will be calculated as follows:

Temporary difference = $150,000 ($450,000 - $300,000)
Enacted tax rate = 30%

Deferred tax liability = Temporary difference x Enacted tax rate x Number of years
                             = $150,000 x 30% x 3
                             = $37,500

Therefore, the correct answer is D) $37,500.

Rodeo Corporation Reported Depreciation of $450,000 on Its 2014 Tax