Question

Relix, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year before recording any net deferred tax asset or net deferred tax liability.

Tax Debit/(Credit) Book Debit/(Credit) Assets Cash $500 $500 Accounts receivable 8,000 8,000 Buildings 750,000 750,000 Accumulated depreciation (450,000) (380,000) Furniture and fixtures 70,000 70,000 Accumulated depreciation (46,000) (38,000) Total assets $332,500 $410,500 Liabilities Accrued litigation expense $0 ($50,000) Note payable (78,000) (78,000) Total liabilities ($78,000) ($128,000) Stockholders' Equity Paid-in capital ($10,000) ($10,000) Retained earnings (244,500) (272,500) Total liabilities and stockholders' equity ($332,500) ($410,500)

The beginning-of-the-year book tax basis differences for the deferred tax liabilities are listed below. Assume a 21% Federal corporate tax rate and no valuation allowance. Complete the table and determine the change in Relix's deferred tax liabilities for the current year.

Beginning of Year Current-Year Difference End of Year Building—accumulated depreciation ($57,000) $ $ Furniture and fixtures— accumulated depreciation (4,200) Subtotal ($61,200) $ $ Applicable tax rate x 21% x 21% x 21% Gross deferred tax liability ($12,852) $ Change in deferred tax liability $

Answer 1

• Deferred tax liability is a tax that is assessed during the current period but will pay in the future.
• Deferred Tax Liability arise when Depreciation Expense allow as per Tax Provisions in the beginning periods are more than Book Depreciation Expense.

Table :-

		Beginning of the Year	Current year difference	End of Year
Building—accumulated depreciation		($57,000)	($13,000)	($70,000)
Furniture and fixtures— Accumulated Depriciation		($4,200)	($3,800)	($8,000)
Subtotal		($61,200)	($16,800)	($78,000)
Applicable tax rate		x 21%	x 21%	x 21%
Gross deferred tax liability		($12,852)		($16,380)
Change in deferred tax liability			($3,528)