A firm purchases an asset with a cost of $12,000. The firm depreciates the asset to zero over three years using straight-line for book purposes and accelerated for tax purposes. The current tax rate is 35% 1. IRS Revenue Depreciation EOY1 20,000 6,000 EOY2 20,000 4,000 EOY3 20,000 2,000 Financial Reporting (GAAP) Revenue Depreciation EOY1 EOY2 EOY3 20,000 20,000 20,000 Carrying amount Tax base Taxes Payable Tax Expense Deferred Tax Assets Deferred Tax Liabilities A firm purchases an asset with a cost of $12,000. The firm depreciates the asset to zero over three years using straight-line for book purposes and accelerated for tax purposes. The current tax rate is 35% 1. IRS Revenue Depreciation EOY1 20,000 6,000 EOY2 20,000 4,000 EOY3 20,000 2,000 Financial Reporting (GAAP) Revenue Depreciation EOY1 EOY2 EOY3 20,000 20,000 20,000 Carrying amount Tax base Taxes Payable Tax Expense Deferred Tax Assets Deferred Tax Liabilities