PROBLEM:
At the beginning of 2013, Pitman Co. purchased an asset for $900,000 with an estimated useful life of 5 years and an estimated salvage value of $75,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2013 and all future years.
At the end of 2013, what is the book basis and the tax basis of the asset?
Book basis Tax basis
a. $660,000 $465,000
b. $735,000 $465,000
c. $735,000 $540,000
d. $660,000 $540,000
And, At the end of 2013, which of the following deferred tax accounts and balances is reported on Pitman's balance sheet?
Account Balance
a. Deferred tax asset $78,000
b. Deferred tax liability $78,000
c. Deferred tax asset $117,000
d. Deferred tax liability $117,000