Reference no: EM132494635

Fisk, Inc., purchased $600,000 of construction equipment on January 1, 2019. The equipment is being depreciated on a straight-line basis over six years with no expected salvage value. MACRS depreciation is being used on the firm's tax returns. At December 31, 2021, the equipment's book value is $300,000 and its tax basis is $173,000 (this is Fisk's only temporary difference). Over the next three years, straight-line depreciation will exceed MACRS depreciation by $31,000 in 2022, $31,000 in 2023, and $65,000 in 2024. Assume that the income tax rate in effect for all years is 25%.

Question a. What amount of deferred tax liability should appear in Fisk's December 31, 2021, balance sheet?

Question b. What amount of deferred tax liability should appear in Fisk's December 31, 2022, balance sheet?

Question c. What amount of deferred tax liability should appear in Fisk's December 31, 2023, balance sheet?

Question d. Where should the deferred tax liability accounts be classified in Fisk's balance sheets?

a) Deferred tax liabilities are recorded as noncurrent liabilities on the balance sheet.

b) Deferred tax liabilities are recorded as current liabilities on the balance sheet.

c) Deferred tax liabilities are recorded as current and/or noncurrent liabilities on the balance sheet, depending on when they are due.

d) Deferred tax liabilities are not reported on the balance sheet, rather they are disclosed in the Notes to the Financial Statements.