Question
Hi, This is a practice question I'm a little confused about. I saw that the answer was D but I'm confused as to why you
Hi, This is a practice question I'm a little confused about. I saw that the answer was D but I'm confused as to why you would record a tax asset or liability in 2010 for equipment that is purchased in 2014. Can you please explain that to me? Thank you
Plaxo Corporation has a tax rate of 35% and uses the straight-line method of depreciation for its equipment, which has a useful life of four years. Tax legislation requires the company to depreciate its equipment using the following schedule: year 1- 50%, year 2 - 30%, year 3 - 15% and year 4 - 5%. In 2014 Plaxo purchases a piece of equipment with a four year life and an original cost of $100,000. What amount will Plaxo record as a deferred tax asset or liability in 2010?
a.
Deferred tax asset of $25,000.
b.
Deferred tax liability of $25,000.
c.
Deferred tax asset of $8,750.
d.
Deferred tax liability of $8,750.
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