Plaxo Corporation has a tax rate of 40% and uses the straight-line method of depreciation for its equipment, which has a useful life of five (5) years (assume no salvage value). Tax legislation allows the company to depreciate its equipment using the following schedule over four (4) years: Yr 1- 40%, Yr 2 - 30%, Yr 3 - 20%, and Yr 4 - 10% (Note: under the tax laws, the company will have no allowable depreciation to reduce taxable income in year 5).

On January 01, 2020 Plaxo purchases a piece of equipment with a five (5) year life and an original cost of $250,000. Will Plaxo record a deferred tax asset or liability in 2020?

Deferred tax asset or Deferred tax Liability

What amount will Plaxo record as a deferred tax asset or liability in 2020?

50,000

100,000

25,000

20,000

(Please show work)