South,Inc. ,earns book net income before tax of $400,000 in 2009.South acquires a depreciable asset in 2009 and first year tax depreciation exceeds book depreciation by $50,000.At the end of 2009,South's deferred tax liability account balance is $17,500.In 2010,South earns $500,000 book net income before tax and its book depreciation exceeds tax depreciation by $20,000.South has no other temporary or permanent differences.Assuming the U.S.tax rate is 35%,what is South's balance in its deferred tax liability account at the end of 2010?

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Quizplus · Accepted Answer

In 2009, the deferred tax liability was $17,500 due to the $50,000 excess tax depreciation, calculated as $50,000 * 35% = $17,500. In 2010, book depreciation exceeds tax depreciation by $20,000, reversing part of the previous difference. The deferred tax liability decreases by $20,000 * 35% = $7,000. Therefore, the balance at the end of 2010 is $17,500 - $7,000 = $10,500.

South,Inc ,Earns Book Net Income Before Tax of $400,000 in 2009.South