cin0318
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Joined: 05 Jul 2012
Location: United States
Online Status: Offline
Posts: 2
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| Posted: 12 Jul 2012 at 19:21 | IP Logged
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Can anyone help me with this question?
Miro Co. began business on Jan 2, year 1. Miro used the
double-declining balance method of depreciation for
financial statement purpose for it's building, and the
straight-line method for income taxes. This was the only
difference between tax and financial statement
accounting. On Jan 16, year 3, Miro elected to switch to
the straight-line method for both financial statement and
tax purposes. The building, which cost $240,000 in Year
1, had a useful life of 15 years and no salvage value.
Data related to the building is as follows:
Year Double declining bal dep S-L depreciation
yr1 $30,000 ; ; $16,000
yr2 $20,000 ; ; $16,000
Miro's tax rate is 40%
Which of the following statement is correct?
a. There should be no reduction in Miro's deferred tax
liability.
b. There should be no increase in Miro's deferred tax
asset.
c. Miro's deferred tax asset should be reduced by $7200
in year 3.
d. Miro's deferred tax asset should be increased by $7200
in year 3.
I know it is going to be deferred tax asset. but how do I
know it is increasing or decreasing and in what amount?
Help is very appreciated!!
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Topic: Deferred Tax asset
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