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How is $1,100,000 found? Please explain and/or show work for calculation. Assume that on December 10, 2020, a new income tax act is signed into
How is $1,100,000 found? Please explain and/or show work for calculation.
Assume that on December 10, 2020, a new income tax act is signed into law that lowers the corporate tax rate from 40 percent to 20 percent, effective January 1, 2022. If Hostel Co. has one temporary difference at the beginning of 2020 related to $3 million of excess tax deprecia- tion, then it has a Deferred Tax Liability account with a balance of $1,200,000 ($3,000,000 X.40) at January 1, 2020. If taxable amounts related to this difference are scheduled to occur equally in 2021, 2022, and 2023, the deferred tax liability at the end of 2020 is $1,100,000, computed as shown in Illustration 19.35. 2021 $1,000,000 40% $ 400,000 Future taxable amounts Tax rate Deferred tax liability 2022 $1,000,000 20% $ 200,000 2023 $1,000,000 20% $ 200,000 Total $3,000,000 ILLUSTRATION 19.35 Schedule of Future Taxable Amounts and Related Tax Rates $ 800,000Step by Step Solution
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