- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 27. Income Taxes
- Subject 2. Deferred Tax Assets and Liabilities
CFA Practice Question
Gumbo Co. uses straight-line depreciation for financial reporting and double-declining balance for tax. Using straight-line, the company reports tax of $18,000; under double-declining balance, tax is $14,000. Gumbo would report a ______.
A. deferred tax asset of $4,000
B. deferred tax liability of $4,000
C. deferred tax asset of $14,000
User Contributed Comments 5
| User | Comment |
|---|---|
| CoffeeGirl | tax payable = 14000 income tax expense = 18000 tax payable < tax expense deferred tax liability 4000 for financing, GAPP, tax expense for tax, tax code, tax payble. |
| Prussle | Should't it be a tax asset? |
| sergashev | It is deferred liability since the company will pay $4,000 later. |
| poomie83 | $14k tax payable as using double declining for tax purposes will result in higher expenses leading lower taxable income and therefore lower amount of tax |
| schweitzdm | Need more detailed explanation |