Question
For calendar 2020, Melvin Corp. reported depreciation expense of $ 800,000 on its income statement, but on its 2020 income tax return, Melvin claimed CCA
For calendar 2020, Melvin Corp. reported depreciation expense of $ 800,000 on its income statement, but on its 2020 income tax return, Melvin claimed CCA of $ 1,200,000. The 2020 income statement also included $ 150,000 in warranty expenses that will be deducted for tax purposes when it will be paid. Melvin's income tax rates are 30% for 2020, 2021 and 2022, and 24% for 2023 and all tax rates are known in advance in 2019. The depreciation difference and warranty expense will reverse over the next three years as follows:
Depreciation Difference Warranty Expense
2021 $280,000 $ 30,000
2022 (30,000) 50,000
2023 150,000 70,000
$400,000 $150,000
These were Melvin's only reversible differences. At December 31, 2020, Melvins deferred tax balance should be
a.
$70,200 Liability.
b.
$70,200 Asset.
c.
$90,000 Liability.
d.
$79,200 Liability.
e.
$88,200 Liability.
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