Question

Oxford Corporation began operations in 2020 and reported pretax financial income of $225,000 for the year. Oxford’s tax depreciation exceeded its book depreciation by $40,000. Oxford’s tax rate for 2020 and years thereafter is 30%. In its December 31, 2020, balance sheet, what amount of deferred tax liability should be reported?

Answer 1

Answer:

$12,000

Explanation:

Oxford Corporation must report = excess depreciation x tax rate = $40,000 x 30% = $12,000

Deferred tax liability represents a tax liability that must be paid in the future. The corporation will have to pay more taxes in the future because it reported a higher depreciation than its book depreciation.