Question

The book basis of depreciable assets for Erwin Co. is \(900,000, and the tax basis is \)700,000 at the end of 2018. The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2018.

Short answer

The book value of an asset is the value at which the investment was recorded in an organization's balance sheet. The amount of depreciation is subtracted from the purchase value of the asset to obtain the book value.

Step-by-step solution

Given the amounts as

Particulars	Amount
Book basis of assets	$900,000
Tax basis	$700,000
Tax rate	34%

Determination of deferred taxes

$\begin{array}{rcl}\mathrm{Deferred}\mathrm{taxes}& =& \left(\mathrm{Book}\mathrm{basis}\mathrm{of}\mathrm{asset}-\mathrm{Tax}\mathrm{basis}\mathrm{of}\mathrm{asset}\right)\times \mathrm{Tax}\mathrm{rate}\\ & =& \left(\$900,000-\$700,000\right)\times 34\%\\ & =& \$200,000\times 34\%\\ & =& \$68,000\end{array}$