Question

Oxford Corporation began operations in 2017 and reported pretax financial income of \(225,000 for the year. Oxford’s tax depreciation exceeded its book depreciation by \)40,000. Oxford’s tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

Short answer

Deferred tax liabilityis a term used when an organizationowns a tax amount, but the authority'spayment has not been made yet. It is reputed under thebalance sheet.

Step-by-step solution

Given the amounts as

Particulars	Amount
Pretax financial income	$225,000
Depreciation	$40,000
Tax rate	30%

Calculation of deferred tax liability

$\begin{array}{rcl}\mathrm{Deferred}\mathrm{Tax}\mathrm{Liability}& =& \mathrm{Excess}\mathrm{Depreciation}\times \mathrm{Tax}\mathrm{Rate}\\ & =& \$40,000\times 30\%\\ & =& \$12,000\end{array}$