Question

Question 5 Your answer is partially correct. Try again. Blue Spruce Corporation has a taxable temporary difference related to net book value versus UCC of $719,000 at December 31, 2020. This difference will reverse as follows: 2021, $58,100; 2022, $320,000; and 2023, $340,900. Enacted tax rates are 25% for 2021 and 2022, and 30% for 2023. Calculate the amount that Blue Spruce should report as a deferred tax asset or liability at December 31, 2020. Deferred tax liability to be reported 17045 If the tax rate for 2023 had been 25%, and unexpectedly increased to 30% at the end of 2020, how would the increase in the tax rate for 2023 have affected the deferred tax asset or liability, and the related expense, in 2020? 196795 The deferred tax expense and liability would increase in 2020 by s

Answer 1

1. Deferred tax liability to be reported $1,96,795. Please see the below working.

Year	Taxable Temporary differene (A)	Tax rate(B)	Deferred Tax Expense (A*B)
2021	58,100	25%	$           14,525.00
2022	3,20,000	25%	$           80,000.00
2023	3,40,900	30%	$       1,02,270.00
Deferred tax expense and Liability at the end of year 2020			$       1,96,795.00

2. The deferred tax expense and liability would increase by $17,045 in 2020 if tax rate increases from 25% to 30%.

Please see the deferred tax with both rate below, the difference between both would be the increase.

Year	Taxable Temporary differene (A)	Tax rate(B)	Deferred Tax Expense (A*B)
2023	3,40,900	25%	$           85,225.00
2023	3,40,900	30%	$       1,02,270.00
Difference in deferred tax expense			$           17,045.00