Question
A firm acquires an asset for $120,000 at the beginning of year 1. The asset will generate $50,000 of revenues in each year. For financial
A firm acquires an asset for $120,000 at the beginning of year 1. The asset will generate $50,000 of revenues in each year. For financial reporting purposes, the asset will be depreciated straight line to zero over four years. For tax purposes, it will be depreciated straight line to zero over three years. Assume the firm has no other expenses apart from depreciation expense. The tax rate is 40%. Use this information to answer Questions (7) - (12).
At the end of year 2 (two), the firms balance sheet will report a:
A) deferred tax asset of $4,000 B) deferred tax asset of $8,000. C) deferred tax liability of $4,000. D) deferred tax liability of $8,000.
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