Reference no: EM132973214

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

Problem 1: These were Melvin's only reversible differences. At December 31, 2020, Melvin's 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.