South,Inc. ,earns book net income before tax of $400,000 in 2012.South acquires a depreciable asset in 2012,and first year tax depreciation exceeds book depreciation by $50,000.At the end of 2012,South's deferred tax liability account balance is $17,500.In 2013,South earns $500,000 book net income before tax,and its book depreciation exceeds tax depreciation by $20,000.South records no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35%,what is South's balance in its deferred tax liability account at the end of 2013?

Question

Quizplus · Accepted Answer

In 2012, the temporary difference caused by excess tax depreciation over book depreciation resulted in a deferred tax liability of $50,000 x 35% = $17,500. 
In 2013, the temporary difference caused by excess book depreciation over tax depreciation resulted in a deferred tax asset of $20,000 x 35% = $7,000. 
Therefore, the balance in the deferred tax liability account at the end of 2013 is $17,500 - $7,000 = $10,500. 
So, the correct option is C.

South,Inc ,Earns Book Net Income Before Tax of $400,000 in 2012.South