Reference no: EM132972147
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.
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