Question

Fresno transportation owns a fleet of 50 semi-trucks. The original cost of the fleet was $7,500,000. Fresno uses straight-line depreciation for the fleet for accounting purposes, and MACRS depreciation for tax purposes. The company had a deferred tax liability balance of $220,000 at the end of fiscal year 2017 related to the fleet. At the end of fiscal year 2018, the GAAP book value of the fleet was $6,230,000, while the tax book value was $5,610,000. Fresno's taxable income for fiscal year 2018 was $6,400,000. Its tax rate was 40%.

Requirements

1) Calculate the deferred tax liability related to the fleet as of the end of fiscal year 2018.

2) Record the tac accrual for 2018 as of the end of fiscal year 2018.

Answer 1

1)	Opening Deferred Tax Liability	220,000
	Closing Deferred Tax Liability*	248,000
	Tax expense for 2018	28,000
	*Calculation of Closing Deferred Tax Liability
		Books	Tax	Difference in Book Value at year end (A)	Tax rate (B)	Closing Deferred Tax Liability (A*B)
	Cost	7,500,000	7,500,000
	Less: Acc Dep	1,270,000	1,890,000
	Book value	6,230,000	5,610,000	620,000	40%	248,000
2)	Income Tax expense	28,000
	To Deferred Tax Liability		28,000
	(Being Deferred tax recorded for 2018)