Question

Clydesdale Corporation has a cumulative temporary difference related to depreciation of \(580,000 at December 31, 2017. This difference will reverse as follows: 2018, \)42,000; 2019, \(244,000; and 2020, \)294,000. Enacted tax rates are 34% for 2018 and 2019, and 40% for 2020. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2017.

Short answer

The cumulative temporary differenceis when an organization faces a difference inits total assets and liabilitiesin itsfinancial statement and income tax base.

Step-by-step solution

Given the amounts as

Particulars	Amount
Cumulative difference related to depreciation	$580,000
Difference for 2018	$42,000
Difference for 2019	$244,000
Difference for 2020	$294,000
Tax rate for 2018	34%
Tax rate for 2019	34%
Tax rate for 2020	40%

Computation for deferred tax liability on December 31, 2017.

Year	Taxable amount	Tax rate	Deferred tax liability
2018	$42,000	34%	$14,280
2019	$244,000	34%	$82,960
2020	$294,000	40%	$117,600
		Total	$214,840