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. $3,150 C. $94,500 D. $91,350

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. ​$3,150 C. ​$94,500 D. ​$91,350

BlackTom AI · Accepted Answer

To tackle this problem, I’ll restate the given data and then walk through each answer choice with reasoning.
The facts: Greene Co. has pretax book income of 315,000 for 2022 and a tax rate of 30%. Depreciation for tax purposes exceeds book depreciation by 10,500. We are asked to determine the deferred tax liability for 2022.
Option A: $0. The calculation omits the temporary difference created by the tax depreciation exceeding book depreciation. Since there is a measurable temporary difference (10,500), a deferred tax item is generated rather than zero. Therefore this choice is incorrect.
Option B: $3,150. This matches the deferred tax liability computed from the temporary difference: 10,500 × 30% = 3,150. Because tax depreciation is larger than book depreciation, taxable income is lower this year, producing a future tax consequence that will increase taxes in the future, i.e., a deferred tax liability. This option is consistent with the standard treatment of deductible timing differences that reverse later and create a liability.
Option C: $94,500. This number represents the current tax expense if you applied the 30% rate to the book income (315,000 × 30% = 94,500) without recognizing the timing difference. It ignores the fact that tax depreciation exceeds book depreciation, which would reduce current taxes relative to the book calculation, so this choice misstates the tax accounting result.
Option D: $91,350. This would be the tax expense computed by applying the 30% rate to the taxable income (315,000 − 10,500 = 304,500; 304,500 × 30% = 91,350). While this figure corresponds to the current tax payable under the temporary difference, it does not reflect the separate deferred tax liability arising from the 10,500 timing difference. Thus this option mixes current tax with the deferred component and is not the correct standalone deferred liability amount.
In summary, the only choice that correctly represents the deferred tax liability created by the 10,500 timing difference at a 30% tax rate is the 3,150 figure, since the temporary difference times the tax rate yields the liability that will reverse in future periods.

Homework:practice exam 2

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