Financial statement and tax return differences


XYZ Corporation expensed on the financial statements $2,000,000 for depreciation expense during the year using straight line depreciation and deducted $3,000,000 of depreciation on the tax return using DDB depreciation. Also, the corporation expensed $1,000,000 of warranty expense on the income statement using an estimate of work to be done on current year's sales (matching) but deducted on the tax return only $600,000 of warrant work since tax law only allows deduction of work done - no estimates. The corporation's tax rate is 30%. What is the deferred tax asset or liability at the end of the year - show work - see if you can compute how many taxes have been postponed or had to be prepaid because of the financial statement and tax return differences.

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Finance Basics: Financial statement and tax return differences
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