B is corrent. At 12/31/Y3, the financial reporting basis of the depreciable asset exceeds its tax basis by $250,000. This means that in future years tax depreciation will be less than book depreciation, resulting in future taxable amounts. The existence of future taxable amounts requires recognition of a deferred tax liability at 12/31/Y3 based on future enacted tax rates. Therefore, Noor should report a 12/31/Y3 deferred tax liability of $100,000 ($250,000 x 40%). Note that the deferred tax liability should reflect the future tax consequences of events which have been recognized in the financial statements, so its computation is based on current tax rates, unless future tax rates have been enacted and are different from the current rate.
A is incorrect. At 12/31/Y3, the financial reporting basis of the depreciable asset exceeds its tax basis by $250,000. This means that in future years tax depreciation will be less than book depreciation, resulting in future taxable amounts. The existence of future taxable amounts requires recognition of a deferred tax liability at 12/31/Y3 based on future enacted tax rates. Therefore, Noor should report a 12/31/Y3 deferred tax liability of $100,000 ($250,000 x 40%). Note that the deferred tax liability should reflect the future tax consequences of events which have been recognized in the financial statements, so its computation is based on current tax rates, unless future tax rates have been enacted and are different from the current rate.
A is incorrect. At 12/31/Y3, the financial reporting basis of the depreciable asset exceeds its tax basis by $250,000. This means that in future years tax depreciation will be less than book depreciation, resulting in future taxable amounts. The existence of future taxable amounts requires recognition of a deferred tax liability at 12/31/Y3 based on future enacted tax rates. Therefore, Noor should report a 12/31/Y3 deferred tax liability of $100,000 ($250,000 x 40%). Note that the deferred tax liability should reflect the future tax consequences of events which have been recognized in the financial statements, so its computation is based on current tax rates, unless future tax rates have been enacted and are different from the current rate.
D is incorrect. At 12/31/Y3, the financial reporting basis of the depreciable asset exceeds its tax basis by $250,000. This means that in future years tax depreciation will be less than book depreciation, resulting in future taxable amounts. The existence of future taxable amounts requires recognition of a deferred tax liability at 12/31/Y3 based on future enacted tax rates. Therefore, Noor should report a 12/31/Y3 deferred tax liability of $100,000 ($250,000 x 40%). Note that the deferred tax liability should reflect the future tax consequences of events which have been recognized in the financial statements, so its computation is based on current tax rates, unless future tax rates have been enacted and are different from the current rate.
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