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Jogg, Inc., earns book net income before tax of $600,000. It puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Jogg has recorded no other temporary or permanent book tax differences. Assuming that the U.S. tax rate is 21%, and that this is Jogg's first year of operations, what is Jogg's balance in its deferred tax asset and deferred tax liability accounts at year-end?

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Answer:

Deferred Tax Asset = $0

Deferred Tax Liability = $25,200

Explanation:

There is no advance Tax payment held by Jogg.Inc. so their Deferred Tax Asset is equal to Zero .

Deferred Tax Liability, represents the amount of tax that will pay by the firm in the future.

Given:

Tax Deprecation Exceeds = $120,000

U.S. tax rate = 21%

Computation of Deferred Tax Liability:

  • Tax Deprecation Exceeds x U.S. tax rate

$120,000 x 21%

$25200

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