CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

If a company depreciates equipment by using MACRS for income tax purposes but uses the straight-line method for financial accounting purposes, the tax consequences resulting from the difference will ______
A. affect deferred tax assets.
B. affect deferred tax liability.
C. cause a valuation allowance to be deducted from equipment.
Explanation: This difference will result in taxable income being less than financial accounting income, because that expense is recognized earlier for tax purposes than for financial purposes. This will result in taxes to be paid in the future and the recognition of a deferred tax liability.

User Contributed Comments 5

User Comment
cahiz84 MARCS stands for Modified Accelerated Cost Recovery System
MrsP From Wikipedia:
The Modified Accelerated Cost Recovery System (MACRS) is the current method of accelerated asset depreciation required by the United States income tax code. Under MACRS, all assets are divided into classes which dictate the number of years over which an asset's cost will be recovered.
migena Thanks!
Yohan3109 so that means its reported less depreciation than accelerate method...
jpducros Yohan, the MACRS normally uses an index than rythm the accelerated depreciation. If index = 1, MACRS = straight line depreciation. If index =2, it is Double Declining balance....if index >2, de depreciation is even more rapid. When index is not precised, consider MACRS = accelerated depreciation.
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