Part 1Greene Co. has pretax book income for the year ended December 31, 2022 in the amount of $315,000 and has a tax rate of 30%. Depreciation for tax purposes exceeded book depreciation by $10,500.What should Greene Co. record as its deferred tax liability for 2022? Part 1
A. $0 B. $94,500 C. $91,350 D. $3,150

Question

Part 1Greene Co. has pretax book income for the year ended December​ 31, 2022 in the amount of​ $315,000 and has a tax rate of​ 30%. Depreciation for tax purposes exceeded book depreciation by​ $10,500.What should Greene Co. record as its deferred tax liability for​ 2022? Part 1
A. ​$0 B. ​$94,500 C. ​$91,350 D. ​$3,150

BlackTom AI · Accepted Answer

We are given Greene Co.'s pretax book income for 2022 and a temporary difference between tax depreciation and book depreciation.

Step through each option by first identifying the nature of the difference. A temporary difference of 10,500 means that taxable income is higher or lower than book income by 10,500 due to depreciation methods; here tax depreciation exceeds book depreciation by 10,500, so taxable income is 10,500 less than pretax book income.

Option A: $0. This would imply there is no deferred tax liability or asset. However, there is a temporary difference (10,500) that will reverse in future periods, generating a deferred tax liability, so this option is incorrect.

Option B: $94,500. This equals 315,000 × 0.30, which would be the current income tax payable if there were no temporary differences between tax and book depreciation. Since a timing difference exists, the current tax is not the full 315,000 × 0.30. Therefore this option is incorrect.

Option C: $91,350. This equals (315,000 − 10,500) × 0.30, representing the current tax payable based on taxable income after accounting for the 10,500 temporary difference. This value corresponds to the current tax expense, not the deferred tax liability.

Option D: $3,150. This equals 10,500 × 0.30, which represents the deferred tax liability arising from the temporary difference. The deferred tax liability grows because the tax depreciation is greater than book depreciation by 10,500, and this difference will reverse in future periods, triggering taxes then.

In summary, the 10,500 difference creates a deferred tax liability equal to 10,500 × 0.30, making Option D the correct characterization of the deferred tax liability, while the other options describe either the current tax or incorrect total figures.

Homework:practice exam 2

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